Commentary:

On light volume, the major indices ended Friday’s session split. The blue chip Dow ended the year by posting a slim 0.1% gain on the session. The S&P 500 finished the day flat, while the Nasdaq, S&P MidCap 400 and the small-cap Russell 2000 fell by 0.4%, 0.7% and 0.8% respectively. Overall, 2010 was a good year for stocks as all of the major indices posted double digit gains.

Market internals were mixed on Friday. In pre-New Year’s trade, volume on the Nasdaq fell a dramatic 67.2%, while turnover on the NYSE increased by a respectable 7.4%. However, NYSE volume was still well below average. Friday’s action saw advancing volume outpace declining volume on the NYSE by a factor of 1.2 to 1. On the Nasdaq sellers held the upper hand, as declining volume was heavier than advancing volume by a ratio of 1.5 to 1.

Our current position in PHO is exhibiting signs that it is preparing for another advance. PHO has recently pulled back to its 20-day EMA on declining volume. An undercut of this moving average, followed by a reversal candle, would further substantiate this opinion. An alternative bullish set-up would be a gap-up or rally back above the four day high of $10.24 on increasing volume.

The SPDR S&P Biotechnology ETF (XBI), is pulling back into support at its 20-day EMA. An undercut of and consolidation at this price level may provide a long entry in this ETF. We will be carefully watching the price action at this key support level for a possible buy entry.

As we have discussed in recent newsletters, market laggards often show signs of life (even leadership) near the end of major up-trends. Recent examples are the banking and real estate sectors. This is not to suggest that we are prepared to call top in the market. Rather, this type of rotation is often a leading indicator to market reversals. The PowerShares WilderHill Clean Energy ETF (PBW) is an excellent example of a laggard that has recently gained market attention. For the past month, this ETF has been consolidating above its 20-day EMA and 50-day MA. Further, volume in PBW has remained very strong as broad market internals have weakened. A move back above the December 30th high of $10.50 could provide a long entry trigger for PBW. Due to its recent price and volume action, we are placing PBW on the watchlist. For our subscribing members, trade details can be found in the watchlist segment of the newsletter.

Now that the holiday season is over, we should begin to see a return of institutional involvement in the broad market. Based on recent price action we would not be surprised to see the market make one last advance prior to a substantial correction.

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Today’s Watchlist:

PBW
Long

Shares = 1,200
Trigger = 10.56
Stop = 10.04
Target = 11.85
Dividend Date = n/a

Notes = see commentary above

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Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices

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Notes:

• 
  No changes to our open positions.
  
• Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
  
• For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.
  
  

Edited by Deron Wagner,
MTG Founder and
Head Trader