Commentary:
Before we discuss the market, I want to remind everyone that if you ever experience a delay in receiving any issue of The Wagner Daily, you can always view it online every day by 8:30 a.m. EST. Although the email is sent to you at exactly the same time the report is available on the web site, occasional queues in email server backlogs may result in delayed delivery to your email box. Please let us know if you ever experience delays so we can troubleshoot, but just remember that each issue is available online in the “Client Access” area of our web site every morning.
Also, if you do NOT want to receive our Courtesy Intraday Trading Update emails, please let us know and we can remove you from the Intraday Update email list. I assume most of you prefer to receive the updates, but there may be a few swing traders out there who don’t care about the intraday updates. So, just let me know if that is you. Now, about the market. . .
Just like our 20-minute opening gap rule kept us out of trouble with a few trades last week, applying the gap rule to yesterday morning’s gap down on the open enabled us to reap solid profits with reduced risk of a sudden reversal. Did anyone notice how both the Nasdaq and the S&P both set new lows precisely at 9:50 a.m.? Hopefully you are starting to see how this opening gap rule keeps us out of trouble, but enables us to profit on days when the gap is not likely to fill. You have probably noticed that gaps usually begin to fill within the first twenty minutes of trading if they are going to fill at all, which is why we use the 20-minute opening gap rule.
While I am certainly not inclined to say the market is going to reverse tomorrow, I am going to be a little more cautious on the short side today because the S&P is now resting on a support level on their daily chart, with another level just below at 863. Take a look:
Notice how the S&P futures index was unable to rally and close yesterday’s gap. This means the 20 and 50 day moving averages overhead have now become resistance levels. However, also notice how yesterday’s low in the S&P lines up with the low of August 14, as well as the highs of August 6 & 7. The S&P is also approaching the upper channel resistance of the former uptrend that it broke through on August 14. Remember that when an index breaks through a resistance levels, that price level or trendline becomes the new support level. Therefore, I expect the S&P to find minor support somewhere between 863 (the trendline) and 876 (the low of August 14). I point this out to you not to make you bullish going into today, but rather to make you aware of support levels that could result in potential short-term reversals.
Today’s watch list:
SMH – Semiconductor Index HOLDR ETF
Sector: Semiconductor
Long
Trigger =
23.57
Target = 25.20
Stop = 22.86
Notes = SMH is looking technically oversold, having sold off all the way back down to the upper channel of the downtrend that was in place from May 17 through August 15. This channel should serve as support, but if it does not, our risk of testing the waters by going long here is minimal. There is also a good chance that the associated SOX index will bounce off current levels and attempt to form a double bottom in the short term.
Given most technical analysis factors, this may not look like too great of a long setup because SMH closed near its low of the day without much support directly underneath it. However, sometimes I like to enter plays just because the risk/reward ratio is significantly skewed, making the risk of entering the trade very minimal because our stop is just below yesterday’s low. I am anticipating that this trade may take several days to hit its target, but we’ll see how SMH acts today and then we’ll decide whether or not to keep it overnight.
QQQ – Nasdaq 100 Tracking Stock
Sector: n/a
Long
Trigger =
22.75
Target = 23.78
Stop = 22.25
Notes = I like this setup for basically the same reasons as SMH above. Notice how QQQ (and the Nasdaq) found support at the lows of August 13 and 14 yesterday. I expect a retest of the 20 and 50 day moving averages on the daily, but if we are wrong, our risk of entering here is low.
PPH – Pharmaceutical Index HOLDR ETF
Sector: Pharmaceutical
Short
Trigger = A rally up to 72.00 OR HIGHER
Target = 69.80
Stop = 73.20
Notes = Note that we are only looking to short this on a RALLY up to 72 or higher. Although the PPH held steady at its consolidation level of 74 for quite a while, yesterday’s selloff put PPH below the lower channel of the uptrend that was holding up on the daily chart. This is likely to result in another day or two of follow-through selling. However, I do want to caution you that the market is likely to bounce today, and if it does, we want to be cautious entering this short because we don’t want to fight the trend of the market. The risk is always lower and the profit potential higher when trading in the overall direction of the market each day. So, I am really only looking at this trade in the event the market is weak again today. If it triggers, I will keep you updated of any change of plans via e-mail.
Deron’s Report Card:
Both the DIA and SPY shorts triggered and worked out well, coming within pennies of hitting our original profit targets into the close (although we took profits before that). Per the intraday email update, we covered half of the position as the market bottomed into the morning selloff and used a tight trailing stop of 25 cents on the rest of the short positions. Therefore, the cover prices listed below represent the average prices we covered our positions at:
Closed Positions:
- DIA short – shorted 85.10, covered 84.20, closed with + 0.90
SPY short – shorted 90.27, covered 89.18 (average), closed with + 1.09
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