The Wagner Daily


Commentary:

The action yesterday was very similar to what we have seen most of week; steady uptrend with buying on the pullbacks to trendline support and selling into the morning highs. Both the S&P and Nasdaq started out strong yesterday morning, but the Nasdaq lost its momentum going into the early afternoon, which caused a lot of technology sectors to stall, especially the Semiconductor Index (SOX). Based on the mid-afternoon deliberation the market exhibited, I was a bit surprised to see the S&P rally to new highs into the final hour of trading, but the interesting thing is that the Nasdaq never followed suit and set a double top instead. This divergence that is what caused me to take profits on all our long positions into the final hour’s rally, going to cash overnight.

Check out this daily chart of the COMPX (Nasdaq Composite Index):

Notice that yesterday’s high was 1426.76, which almost exactly lines up with the high of July 17, which was 1426.28. If we don’t go higher today, yesterday was a perfect double top. Talk about the power of basic technical analysis! Although the double top has not yet been confirmed, this level could easily serve as resistance going into today’s session due to the early warning signs we saw. The SOX index could barely get out of its own way yesterday afternoon, which leads me to believe the Nasdaq is going to take a rest for a day or two. Remember that the Nasdaq typically does not go anywhere without the SOX. Also note how the Nasdaq (and the S&P for that matter) are both rallying into the upper channel resistance of the uptrend that started on August 7.

I am not very bearish going into today’s session because there is indeed a lot of support underneath the current price levels. However, I would be careful being on the long side, especially considering it is Friday. Many traders will want to take this week’s profits off the table going into the weekend. After the market has been up for so many days in a row, days like today tend to suck in a lot of retail “dumb money” right at the top. If the market exhibits weakness today, we will look to selectively short the weak sectors with tight stops. Be on alert for one final exhaustion move up today, but I think a more likely scenario is sideways to down.


Today’s watch list:


SPY – S&P 500 Tracking Stock
Sector: n/a
Short

Trigger = 96.30
Target = 94.08
Stop = 97.25

Notes = As discussed above, I am not very bearish on the market in the intermediate term, but I do think the SPY will take a rest for a few days and come down to the lower channel support of its uptrend on the daily chart, which is around 94. Once the trade is in the money with a solid profit buffer, I will work to lower my stop to breakeven because I don’t want to be too aggressive on the short side. Beyond that, we will be using a trailing stop to continually lock in profits. Remember to use gap down rules if it gaps down much below our trigger price (wait for break of 20 minute low).



SWH – Software Index HOLDR ETF
Sector: Software
Short

Trigger =
27.75
Target = 26.77
Stop = 28.20

Notes = This play is very similar to the SPY short above. The sector has been very strong, but has had a parabolic run into the upper channel resistance band without taking a rest yet. If it breaks yesterday’s consolidation of 27.75, it should see a 0.318 Fibonacci retracement back down to around 26.50. This ETF only trades an average volume of 500k shares, but it is liquid enough for a swing trade. Just use limit orders instead of market orders for this ETF.


Deron’s Report Card:

Overall, yesterday was quite profitable for us. All three of our plays triggered, and two of them worked out quite well. The third was exited with a small loss. We also closed the overnight QQQ long for a small profit. Since all of our plays were long, I went to cash overnight (as posted on the Client Access area of the website) because I expect a pullback in today’s session. By the way, anyone catch PPH long yesterday? It was incredibly strong after breaking out of that base we have been following for the past week.

I took profits on the OIH long into the first morning rally that took it within 6 cents of my price target. However, going into the final hour of trading, OIH actually rallied beyond my price target to an intraday high of 57.28. Since I did not anticipate OIH hitting my price target the same day it triggered, we received a gift there with an easy 2 points.

After it triggered, I used a trailing stop on BBH for most of the day yesterday. However, when I spotted the relative weakness in the Nasdaq late in the session, I took profits on BBH because I anticipated being able to get back in at a lower price if the market sold off into the close. I was obviously wrong about the Nasdaq selling off into the close, but it did lose a lot of momentum. I just didn’t want to be long going overnight yesterday.

I entered SMH once it triggered, but cut the loss shortly thereafter upon noticing the relative weakness in the SOX. Sector rotation started occurring after that morning pop in the SOX and I saw no point in staying long a weak sector, even though it never hit my “official” stop price.

Closed Positions:

    OIH long – bought 54.79 (average price), sold 56.85 (average price), closed with + 2.06

    BBH long – bought 90.90 (bad fill), sold 92.15, closed with + 1.25

    QQQ long – bought 25.70, sold 25.93, closed with + 0.23

    SMH long – bought 29.13, sold 28.80, closed with (0.33)

Open Positions:

    (none)

Glossary and Notes:

Remember that opening gaps that cause stocks
to trigger immediately on the open carry a higher degree of risk because the
gaps (both up and down) often do not hold. Use caution if trading stocks with
large opening gaps.

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
change.

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
updates.

SOH = Sit On Hands (Don’t Make Trades)

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
trading day.

Unless 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