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The Wagner Daily


Commentary:

After gapping down to support of the previous day’s low that was set
during the final hour of trading, the broad market found support yesterday and
filled the gap within the first sixty minutes of trading. This was a classic
“gap and fill” which you often see if the market closes strong the previous day,
the gap is small in percentage, and there is no real news behind the gap down.
Days like yesterday are the exact reason we have our opening gap rules, which prevented us from
shorting BBH at the lows and allowed us to adjust our stop in SMH and profit
from its subsequent recovery.

In scenarios like we saw yesterday,
trading can become tricky after the gap is filled because of the resistance that
the filling of the gap brings. The resistance is caused by bulls who were long
overnight in anticipation of a flat to positive opening, but got trapped when
the market gapped down. Many of these traders are hoping the market recovers
just enough for them to simply “break even,” which causes the price resistance
when they sell into the filling of the gap. That is why it is always safest to
wait until the previous day’s highs are broken before attempting to go long
after a gap has been filled, which is what we did yesterday.

After the
gap was filled, the market eventually broke the previous day’s highs, but we
were not convinced that it was going to run very far due to the numerous moving
average resistance points that were overhead. SPY and DIA both had their 200-MAs
on both the 60 min. and 15 min. charts, as well as their 20-day MAs overhead.
Therefore, we knew that any rally was bound to be short-lived.

Much as
we anticipated, the entire afternoon trading session was lethargic after the
S&P ran out of gas in the late morning. We exited our long positions near
the top of the rally going into the mid-day doldrums and stayed in cash the rest
of the day. By being disciplined and not attempting to enter new positions
without any clear trade setup, we protected our profits from the earlier part of
the week and even made a little bit of profit on our SMH long and DIA long
(mentioned in the ETF Room).

Going into today, the broad market is once
again in “no-man’s land” because it closed in the middle of the trading range of
the past three days. The daily charts have been trying to form a reversal back
to the upside during the past few days, but the rallies have been unable to show
much conviction. This is due largely to the fact that volume has been light,
indicating that buyers are taking a step back. In fact, yesterday was the
lightest volume day in the Nasdaq in a month (not including the half-day at
Thanksgiving). Until volume picks up, we are inclined to say the market will
continue to drift around its current range. Each of the major indices are
trapped between their 20 and 50-day moving averages, so those are the key levels
to watch for resistance and support. A break above or below the range of the
prior several days will likely cause volume to increase and give us a solid move
one way or the other. We really don’t have much of an opinion on which way it
will go, but we probably will soon see a significant breakout or breakdown. Both
Retail Sales and Initial Jobless Claims reports are due out at 8:30 am EST
today, so those reports have the capability to move us out of the current
trading range.


Today’s watch list:


MDY – Mid-Cap SPYDER
Long

Trigger = 80.50 (above
yesterday’s high, as well as the 20-day MA and the 200-MA on the 15 min.)

Target = 81.50 (high of Dec. 4)
Stop = 79.95 (below the 20 and 40-MAs on
the 15 min. chart)

Notes = We were watching both IWM and MDY yesterday
and MDY actually acted much better than IWM and now has less overhead
resistance. We like this play better than SPY because it will already be above
its 20-day MA if it triggers.



BBH – Biotechnology HOLDRS
Short

Trigger = 85.95
(below low of Dec. 10 and 50-day MA)
Target = 84.25 (low of Nov. 13)

Stop = 86.75 (20-MA on 15 min. chart)

Notes = BBH short did not
trigger yesterday due to our gap down rules. However, we still like this as a
potential short if it breaks below is 50-day MA and below the low of Dec. 10 for
confirmation. We view yesterday’s bounce in the sector as simply a price
correction to the prior several days of selling, which actually increases the
odds of the short favorably working if it triggers today.

Be aware that
BBH can be a very volatile stock, so we will be decreasing our share size to
compensate.



SPY – SPYDERS (S&P 500 Index Tracking Stock)

Short

Trigger = 90.45 (below the 20-MA on the 60-min chart, which
lines up with the trendline of the past three days)
Target = 89.10 (support
of the 50-day MA)
Stop = 91.05 (above yesterday’s high and the 40-MA on 60
min. chart)

Notes = Just a technical play on a break of trendline and
moving average support.


Daily Reality Report:

Because of the increased number of intraday
trades in our new ETF Real-Time Room, we are in the process of modifying the way
we report daily results in order to minimize confusion to subscribers of The
Wagner Daily
. We will continue to report and update you on open positions
each morning; you will always know where we stand with any open positions that
were discussed in the newsletter. In addition, all trade statistics will
continue to be compiled as they were before. However, we will be displaying the
summary of all intraday trades (discussed in the ETF Room) only once per week
(in The Wagner Weekly) instead of daily. This is a more efficient and
less confusing way of reporting our trades, especially on days when we enter the
same position two or three times intraday.

Click here to read
the details on how we calculate our Reality Report statistics.

Trades only from The Wagner Daily (ETF Room
trades not reported):

Made a little profit on the rest of
our SMH from overnight and broke even on IWM. BBH did not
trigger.

Closed Positions:

    SMH long (1/4 position) –
    bought 24.73 (avg.), sold at 25.80, points = +
    1.07, net P/L = + $158

    IWM long –
    bought 78.81 (avg.), sold at
    78.88, points = + 0.07, net P/L = + $7

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

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