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The Wagner Daily


Commentary:

Much
as we anticipated, the S&P bounced off the July 24 low yesterday, forming a
double bottom (at least in the short term). After an initial gap-up on the open,
the S&P futures sold off pretty hard, eventually taking out the low of the
previous day by 11:30 am. However, the S&P found support from the area of
the July 24 low and began to rally during the mid-day doldrums. By 2:00 pm, the
S&P broke above the 40 period moving average on the 15 minute chart and also
rallied above its opening high of the day. Since the 40 MA is the level that had
been resistance since October 2, we were carefully watching for a break above
that level to initiate a few long intraday trades, which we did. The major
market indices ran out of gas during the final hour of trading, but both the
S&P and Nasdaq managed to close above their 15 minute 40 period MAs, which
now should become support.

Unlike the previous few days, the S&P and
Nasdaq both traded in tandem yesterday. However, there was once again relative
weakness in the SOX index, which held the Nasdaq down in the late afternoon.
There was also weakness in the Oil Service sector. Two of the strongest sectors
were Retail and Financial, both of which played a big role in the S&P
rally.

Volume in the NYSE yesterday was the highest we have seen since
July 31. More importantly, most of the volume came in during the afternoon
rally, as opposed to the morning selloff. This indicates to us that, as we
mentioned yesterday, the sellers are continuing to dry up, while the buyers were
ready and waiting for the right moment to buy. Remember that volume is a leading
indicator in that volume leads price. Therefore, it is crucial that we continue
to keep an eye on the volume over the next couple of days to see if this trend
continues. By doing so, we will gain insight into what is really happening
during these choppy trading days.

Going into today, we once again don’t
have a lot of conviction on either side of the market. The bullish argument is
that the S&P and Nasdaq both rallied above the upper channel resistance of
their downtrends from October 2 (which is the 40 MA on the 15 minute chart).
However, the bearish argument is that we still have a long way to go before we
break the intermediate term downtrend, which is the upper channel of the
trendline from September 11. This equates to a price of 827 on the S&P
futures. The primary indicator we will be watching today is the 40 MA on the 15
minute chart for both the S&P and Nasdaq. Both of these levels should now
act as support because former resistance levels become the new support levels
once they have been broken. Therefore, taking a long position with a stop just
below the 40 MA is a low-risk, high profit potential trade setup. If the S&P
or Nasdaq drop below their 40 MAs, the conservative play is to wait until
yesterday’s lows are broken before selling short. Otherwise, you may just get
chopped around once again.


Today’s watch list:



SMH – Semiconductor HOLDRS
Sector:
Semiconductor
Long

Trigger = 18.27 (above the high of yesterday
afternoon, which is also the four-day trendline)
Target = 19.20 (resistance
of the 200 period MA on the 15 minute chart)
Stop = 17.73 (below yesterday’s
close, also the 20 MA on 15 min. chart)

Notes = Even though the SOX index
has been weak and showed relative weakness yesterday, we like the high volume we
saw on SMH yesterday, which indicates to us that a short-term bottom may be
near. We also like the long wick on the bottom of yesterday’s candle, which
indicates a possible reversal day. Since the SOX has been weak for the past four
days, we would not be surprised to see sector rotation back into the tech stocks
if the market is strong today. Confirmation of a reversal would occur once
yesterday’s high is broken.



MDY – MidCap SPDR
Sector: n/a
Long

Trigger = 71.30
(above yesterday’s high)
Target = 72.95 (resistance of the 200 period MA on
the 15 minute chart)
Stop = 70.44 (below the low of yesterday
afternoon)

Notes = MDY had its first reversal day yesterday and closed
relatively strong. We also liked the high volume that came into it during the
final 2 hours of trading.


Deron’s Report Card:

DIA short triggered yesterday afternoon, but
we covered breakeven before it hit its stop (per intraday update email) because
it wasn’t acting as weak as it should have after setting a new daily low. This
turned out to be a wise move because DIA subsequently rallied more than two
points.
We bought SPY after breaking its 40 MA on the 15 minute chart and
sold into strength during the late afternoon. Although we intended for this to
be a swing trade, we didn’t like the weakness we saw during the closing hour, so
we did not take it overnight. We also bought QQQ for the same reason, but took
half of the position overnight.

“Swing” trades
(per The Wagner Daily)

Closed
Positions:

    DIA short – shorted 73.98, covered 73.91, closed with + 0.07

    SPY long
    – bought 79.87, sold half 80.40, sold half 81.12, closed with + 0.89 (avg.
    profit)

    QQQ long – bought 20.27, sold half 20.54, other half still open,
    closed HALF with + 0.27

Open Positions:

    WMH long (from Oct. 2) – bought 30.35, stop at 27.25, target 42.50, open
    with (1.65)

    QQQ long (HALF position from Oct. 8)- bought 20.27, stop at
    20.05, open with (0.07)

Intraday trades (per
Intraday Updates E-mail Service)

    XLF long – bought 19.23, stopped out 18.94, closed with (0.29)

    XLF
    long (re-entry) – bought 19.20, sold half 19.45, sold half 19.60, closed with +
    0.33


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

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