Wagner Daily Lite – Feb. 2, 2012

Equities surged on Wednesday on mixed trade. All five major indices posted solid gains. The advance was led by the small-cap Russell 2000 and the S&P MidCap 400. The small-cap index tacked on 2.1% while the S&P MidCap 400 climbed by 1.9%. Although the DJIA and S&P 500 posted reasonable gains of 0.7% and 0.9% respectively, both exchanges faded into the close. The tech-rich Nasdaq closed 1.2% higher. Virtually every technology sector ripped higher yesterday. Sectors exhibiting the most relative strength included semiconductors, internet, networking, software and biotechnology. Precious metals, real estate, emerging markets an broker-dealers also performed well. The oil, natural gas, retail and pharmaceutical industries were the day’s big losers.

Market internals ended the session mixed. Volume skyrocketed on the Nasdaq by over 20.0% but slid on the NYSE by almost 3.0%. However, volume was still strong on the NYSE as it closed well above the 50-day volume moving average. Advancing Volume overwhelmed declining volume by a ratio of 5.1 to 1 on the NYSE and 6.3 to 1 on the Nasdaq. Overall it was a strong day across the board on Wall Street, but only the Nasdaq can claim an accumulation day, as both volume and advancing volume closed higher on this index.

Yesterday, on an uptick in volume, the ProShares UltraShort Euro (EUO) formed a reversal candle and held support at the 3 day low. If EUO can consolidate for several days near the current level, it could provide a buying opportunity above the 2-day high of $19.94. We will be monitoring this ETF closely for a potential long entry:

After SOXL gapped up at the open, we reset the price trigger to just above the five minute high. However, we ended up sending out an alert to buy SOXL, as it pulled back sharply into support near the entry pivot, just above Tuesday’s high. Yesterday is the perfect example of why we don’t enter an ETF on a gap up unless it can take out the five minute high. The pullback in SOXL provided a considerably better entry and by the close we were up over 5% on the trade. You may recall that several days ago we listed SOXS as a possible long candidate. However, as swing trades we have to be willing to quickly divorce ourselves from any trading bias as market conditions and trade setups can shift quickly. When the market began setting up on the long side, we reevaluated the situation and went long the semiconductor sector.

Also yesterday, UCO hit its trigger and we entered the trade. However, shortly after entering, we sent an alert to exit the trade for a scratch. Even though the oil sector was showing relative weakness yesterday, we just didn’t feel comfortable shorting the market. Generally when we enter a trade on the short side we like to see the position fall quickly. Although the trade would have likely worked out, we would rather be in cash and wait for other setups to develop.

The market responded quite well yesterday in light of a poor earnings announcement from AMZN. Yesterday’s price action is indicative of bull market activity. Institutional players are stepping up to the plate and seizing every buying opportunity. However, we are likely near the end of this most recent leg higher. Consequently, we will be looking to take profits into strength over the next several days.

The commentary above is a short version of our daily ETF and stock newsletter, The Wagner Daily. Subscribers to the full version receive specific stock & ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. A Live Trading Room is included with your subscription, and Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. Click here for your risk-free subscription.