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The Wagner Daily


With the exception of a small selloff going into the mid-day doldrums yesterday, the broad-based indices stayed in a trading range for most of the day. As expected, Blix’ speech regarding UN weapons inspections and Colin Powell’s subsequent response a few hours later, caused the market action to be rather dull. Because all the talk on Iraq prevented the market from forming a trend yesterday, we did not enter any new positions until the final thirty minutes of trading when we bought SPY and DIA as overnight plays. This turned out to be a wise move because there was a lack of follow through in the markets during the entire afternoon session.

The Nasdaq joined the Dow and S&P in closing below its December 31 lows yesterday, causing all three major indices to be negative on the year. Although now below support of its December lows, the Dow Jones Average (and DIA) began finding support yesterday near the highs of the end of September/beginning of October. In addition, the Dow converged with the lower channel support of the daily downtrend from December. The daily chart of the Dow Jones Average below illustrates these key support levels.

Did you notice what price the Dow found support at yesterday? It was the big psychological support level of 8000. As we discussed yesterday, large whole numbers always stick in human minds as important support/resistance levels, even though there may not be any technical reasons why it should be. Interestingly, the 8000 level acted as a magnet during yesterday’s entire afternoon trading session, pulling the Dow back up to 8000 whenever it dropped below. This should serve as a short-term support base off which the Dow will probably correct by rallying at least back up to the lows of December, just above 8200.

The most important thing we noticed in all of yesterday’s trading session was the fact that the market did not collapse after all the “tough talk” by Colin Powell late yesterday afternoon. In fact, the market actually rallied a bit as the threat of war was being discussed. This subtle, yet very important indicator, tells us that the market may have already built in much of that expectation with the selling that we have seen during the past 7 trading days. The market’s resilience yesterday despite all the war talk indicated to us that a short-term correction will likely be attempted during the next day or two, which is why we took a few positions long overnight. Even though the market could drop for another day before recovering, the risk/reward of going long at current levels is a positive one.

It is my opinion that as the U.S. gets closer and closer to attacking Iraq, the market will steadily begin to accept the war as a reality and begin to stabilize. The market hates uncertainty and the vast amount of uncertainty over how to handle the Iraq situation lately has been a major drag on the market. However, if and when the war actually begins, it will obviously eliminate much of the uncertainty. As with most major events over the past 100 years in the market, recoveries usually come after the big event begins, but not with all the associated indecision before. In addition, earnings season is mostly behind us and no major companies reporting any scandals or large earnings surprises.

While we do not advocate getting overly aggressive on the long side, odds are pretty good that the market sees a technical bounce today or tomorrow. However, don’t get too excited because the broad market is in pretty bad shape technically, having broken its 20 and 50-day moving averages, as well as the December lows. Nevertheless, yesterday was the 7th out of the last 8 days to close negative, which is highly unusual to see and indicates a bounce is more likely than lower prices over the next several days. Be aware that both the Consumer Confidence and New Home Sales reports are due out at 10 am EST today and could both potentially be market movers. In addition, remember that Bush’s State of the Union address is today after the close.

Today’s watch list:

PPH – Pharmaceutical HOLDRS


Trigger = above 71.30 (above price resistance of yesterday afternoon)
Target = 72.55 (resistance of 20-MA on 60 min. chart)
Stop = 70.65 (below yesterday’s low)

Notes = Pharmaeceutical Index getting very oversold and just playing a bounce once confirmation of a reversal occurs through a break of yesterday’s price resistance. In addition, several key Pharma stocks reported earnings this morning which could give a boost to PPH.

Daily Reality Report:

Below is Morpheus Trading Group’s daily performance report of closed trades and an update on all open positions from The Wagner Daily (ETF Intraday Real-Time Room trades are reported separately in The Wagner Weekly).



Open Positions:

    SPY long (from Jan. 27) –
    bought 85.36, will adjust stop and email alert after first 5 minutes of trading, open points = (0.16), open P/L = ($38)

    DIA long (from Jan. 27) –
    bought 80.37, will adjust stop and email alert after first 5 minutes of trading, open points = (0.22), open P/L = ($48)


Click here for a detailed explanation of how daily trade performance is calculated.

Click here for a detailed cumulative report of MTG’s trading performance (updated weekly)

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

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

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.

otherwise noted, average holding time is 1 to 3 days once a position is
triggered. Updates on open positions are provided daily.

Yours in success,

Deron M. Wagner

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