The major market indices were choppy on Wednesday as consolidation near the highs continued for another day. The rally we saw into the close off the lows was significant because it confirmed the change to bullish sentiment that I spoke of yesterday. Although both the S&P and the Nasdaq were mixed, there was more overall weakness in the Nasdaq as the Semiconductor and Hardware sectors held the index down. The strong sectors were scattered, but there was mild strength in the Oil, Telecom, and Bank sectors.
The important thing to realize right now is that the markets still have not given back gains from last week’s rally. The longer this consolidation continues without giving recent gains back, the more likely the markets make another leg higher. However, the most profitable play on choppy days like Wednesday is often to do nothing and wait for the clear setups to show their hands. The best traders I know are out of the markets more than they are in the markets, so be selective out there and I will do the same on my end by continuing to carefully select low-risk, high-profit potential trades for The Wagner Daily until we break out of the current trading range.
Today’s watch list:
GM – General Motors
Trigger = 47.10
Target = 49.90
Notes = Although I recently got stopped out when swing trading GM long because my stop was a bit too tight, I have been stalking it for re-entry because often the re-entries are my most profitable trades. In this case, I want to re-enter because GM has confirmed that it is going to hold the consolidation above the upper channel of the downtrend and the 20 day MA. A break above the three day high will likely see a big move due to increasing volume as the shorts cover.
RMBS – Rambus, Inc.
Trigger = 5.43
Target = 6.45
Notes = Even though the SOX index has been weak, this stock continues to hold up, indicating that any return to strength in the SOX index will probably give this stock the momentum it needs to break out of the triangle. This was on yesterday’s watch list and did not trigger, but I still like the play for the same reasons and want to continue stalking it until it either hits my trigger or the setup fails.
ADPT – Adaptec, Inc.
Trigger = 5.80
Stop = 6.20
Notes = ADPT has been showing a lot of relative weakness to the sector and actually broke to a new 52-week low yesterday. If it gets below yesterday’s low, the bottom could fall out quickly, especially as it approaches the $5 level that mandates mutual funds to dump it. Just beware of a false breakdown where the price dips below support and then quickly reverses. I would be more excited about shorting this stock if it gaps down below 5.88 today because the gap down to a new 52-week low creates a lot of overhead resistance.
Deron’s Report Card:
Covered DVN short with the lowered stop that got hit shortly after the open. Made a little profit.
The GM long got stopped out with a loss, although I am watching for re-entry later this week.
The RMBS long never triggered
Th PG short never triggered. In fact, notice how strong PG was yesterday, rallying several points. This is why it is important to not enter trades without the actual trigger price first being hit. The exception to this is when I am fading a position on the open, but that is not common either.
- DVN short – shorted 41.89, covered 41.40 (hit lowered stop), closed with + 0.49
GM long – bought 46.70, stopped out 45.22, closed with (1.48)
RMBS long (no trigger)
PG short (no trigger)
Glossary and Notes:
Trigger = Exact price that stock must
trade through before I will enter the trade. If a long position, I will only
enter the stock if it trades at the trigger price or higher. For a short
position, I will only enter the stock if it trades at the trigger price or
lower. It is really important to only enter the position if the trigger price is
hit, otherwise the trade becomes riskier.
Target = The anticipated
price I am expecting the stock to go to. However, this does not mean that
I will always hold the stock to that price. If conditions warrant, I will
sometimes take profits before that price, in which case I will notify you of the
Stop = The price at which I will have a physical stop
market order set. As a position becomes profitable, this stop price will often
be adjusted to lock in profits. Again, you will always be notified of such
changes in the next daily report or intraday if you subscribe to intraday
Closed P&L under Deron’s Report Card is based on the actual
price I closed my trade at, not just the theoretical target or stop price listed
for each stock. Open P&L is based on the closing prices of the most recent
Remember that opening gaps that cause stocks to trigger
immediately on the open carry a higher degree of risk because the gaps often do
not hold. Use caution if trading stocks with large opening gaps.
otherwise noted, average holding time is 2 days to 2 weeks once a position is
triggered. Updates on open positions are provided daily.
Yours in success,
Deron M. Wagner