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The Wagner Daily


Well, there is not a whole lot to say about yesterday because it was basically a mirror image of the previous day (March 5). Each of the major indices began the day with a test of the previous day’s lows, then a sharp rally to test the previous day’s highs, back down to test the lows of the day, and then a rally back up to the middle of the range. Although DIA held the previous day’s low, it was the weakest of the three major indices (SPY, DIA, and QQQ) because it broke the morning lows going into the afternoon.

The primary difference between yesterday and March 5 was the way the market closed. The major indices rallied to close at the highs on March 5, but yesterday they each chopped around to close in the lower third of the intraday range. So, although we had a roller coaster session again yesterday, the close was much weaker and the range was more narrow. The choppiness and indecision of the past several days has created quite a mess on the intraday charts. Not only have we been in a sideways trading range, but the range has been so narrow that even scalping for tiny profits has been challenging. The 3-day, 15-minute intraday chart of QQQ below gives you an idea of why intraday trading has been so tricky the past few days. In addition to the narrow trading range, note the numerous false breakouts and breakdowns, then sudden reversals in the opposite direction:

Because many indices and sectors closed in the middle of their ranges yesterday, there are a lot of “doji star” candlestick formations on the daily charts going into today. However, while the doji often indicates a pending trend reversal, it really does not mean much when a doji forms in the middle of a sideways trading range. So, don’t read too much into that if you are a candlestick charting guru. The reality is that the market’s direction over the next several days is difficult to determine because of how erratic the past few days have been. If I was forced to choose a side, I would say I am slightly bearish on the broad market here because of the way the major indices have been consolidating at the lows of the past week’s session. However, the intraday breakout attempts make me equally as cautious on the short side as the long side. Because the major indices are basically directionless at this point, you may find some better opportunities by looking to trade the sector HOLDRS. You do this by buying sectors showing relative strength to the broad market and shorting those with relative weakness. By trading sectors that are showing relative strength or weakness to the broad market, you decrease your risk and increase your profits. If a sector does not sell off when the market does, it will usually be the first sector to rally sharply on just a slight bounce in the market. If the bounce in the broad market does not come, that sector will usually be the last one to drop. As an example, take a look at yesterday’s 5-minute intraday chart of OIH (Oil Service HOLDRS) overlayed with SPY (S&P 500 Index Tracking Stock):

As you probably already know, Bush held a televised press conference last evening in which he essentially stated “we don’t need anybody’s permission to protect our security.” Hours later, a meeting was scheduled for later today (Friday) in which top arms inspectors will brief the U.N. Security Council on Iraq’s cooperation in its efforts to eliminate weapons of mass destruction. Combined with Bush’s comments last evening, we feel today’s UN Security Council briefing will bring some closure on whether the U.S. attacks Iraq or not. The reason I am pointing all of this out to you is to let you know the market is likely to be extremely news-driven today, essentially ignoring key technical analysis signals. Although an imminent attack seems to logically be a negative for the market, we often see a bullish reaction because it removes uncertainty, which the market always hates. However, a negative report from bellweather Intel after the close yesterday is likely to weigh on the markets. The bottom line is that today could be quite volatile, so be on guard for that and ALWAYS use mechanical stops to protect against major losses.

Today’s watch list:

UTH – Utilities HOLDRS


Trigger = above 60.35 (breakout on the daily chart)
Target = 63.00 (swing high of Feb. 3)
Stop = 59.10 (below yesterday’s low)

Notes = This play was brought to our attention by one of our ETF Real-Time Room subscribers, BigDipper. UTH has been consolidating at 60 for several weeks and has tested resistance at 60 four times. Next time is likely to break, especially combined with the fact that UTH is a defensive sector play. This sector is likely to see positive money flow if money flows out of broad market.

NOTE:The broad-based indices could also be short setups today if they break the Feb. 13 lows, which would cause new lows on the year. However, there is a vicious gap down pre-market and we want to see if that gap holds before shorting into such a gap down. Will email alert if we short the major indices.

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).


    OIH long (1/3 position size from March 6) –

    Bought 57.04, sold 57.79, points = + 0.75, net P/L = + $24

    QQQ short (HALF position from March 6) –

    Shorted 24.37, covered 24.56, points = (0.19), net P/L = ($44)

Open Positions:

    OIH long (2/3 position size from March 6) –

    Bought 57.04, raised stop to 57.40, open points = + 0.96, open P/L = + $63

Notes: We had better timing on the re-entry of OIH yesterday and the trade is working out well so far. We closed 1/3 of the position yesterday to lock in some profit and took the remaining 2/3 of the position overnight with nearly a point of profit buffer. With tensions increasing in Iraq and talk of oil scarcity abound, both factors should aid in propping up OIH (in addition to the technical setup). We also shorted QQQ yesterday on a break of the 20-day moving average, but yesterday’s chop stopped us out with a small loss (due to only taking a 1/2 position).

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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