--> The Wagner Daily

The Wagner Daily


Commentary:

The major indices each broke above their resistance points we discussed
in Friday’s newsletter. This provided us with some decent intraday trading
opportunities, as well as the chance to scale out of a few swing trades into
strength with a solid profit. SPY (S&P 500) broke through resistance of its
weekly downtrend lines on Friday, which could serve as the stimulus for a decent
rally from here. After spending most of the week in a sideways consolidation
pattern that showed a good deal of intraday indecision, SPY closed the week
above a 3-year downtrend line that has been in place since August 2000. The
weekly chart of SPY below illustrates the break of this downtrend line, as well
as the break above the 50-week moving average:

In addition to the break above the weekly downtrend line and
50-week moving average, the weekly ADX
indicator
closed higher this week, just above 20. This signals the start of
a new uptrend. More importantly, the CCI
indicator
closed above 100, which confirms the strength of the new uptrend.
This combination of the weekly ADX and CCI indicators has proven very reliable
in the past, so it has definitely caught our attention, especially when combined
with the break of a 3-year downtrend line. Volume analysis has been showing
heavier volume on the buy side than sell side, indicating an overall positive
advancing volume to declining volume ratio. Based on all these bullish signals,
we took a 1/2 position of SPY long over the weekend from 93.03 and will trail a
stop higher. Many technical signs point to higher prices in SPY from here, but
keep an eye on the high of January 2003, which is a resistance level that SPY
has not yet broken.

More importantly than the SPY breakout is the fact
that DIA (Dow Jones Industrials) finally broke through its weekly trendline
resistance as well. Since the Dow has been lagging both the S&P and Nasdaq
during the uptrend of the past month, it was critical that the Dow confirmed the
rally by breaking its weekly downtrend as well, which it did on Friday. In
addition, DIA is now in the process of completing the follow-through of a bullish
ascending triangle pattern
. I have annotated both of these things on the
weekly chart of DIA below:

The projected distance of a rally when an ascending triangle
is broken is equal to the height of the triangle from the lowest low to the
breakout point. Since the low of the ascending triangle was around 78.50 and the
breakout was around 85.50, that equates to a projected rally of 7 points above
the breakpoint. This gives us a target of approximately 92.50. However, it’s
more likely that the DIA rally would stop around 90.50, which is the high of
December 2002. If you wanted to go long DIA, you could set your stop about 1
point below the breakout point (84.50 area). Based on a target of 90.50 and
Friday’s close of 85.81, this gives you a risk/reward ratio of more than 1:4
(risking about one point to gain over four points). You will see that DIA is now
one of today’s long setups below.

QQQ (Nasdaq 100) continues to be the
leader of the three major broad-based ETFs. It broke its weekly downtrend line
over a month ago and is the only of the three that is trading above its January
2003 high. However, now that SPY and DIA have broken key resistance levels, we
expect to see sector rotation out of the Nasdaq and back into the S&P and
Dow. In addition, QQQ will soon be running into resistance of its December 2002
high, which is only 61 cents above last week’s closing price of 28.28.
Therefore, we feel that long plays in SPY and DIA offer a better risk/reward
than QQQ at this time. That’s why we closed our QQQ trade with a profit on
Friday rather than taking it over the weekend. The daily chart of QQQ below
shows the approaching resistance of the December 2 high:

Overall, the technical picture is starting to look pretty good
out there. Rather than have an opinion on what the market is going to do in the
coming months, we simply react and trade on the side of the market that the
charts dictate. In the intermediate term, they point to the likelihood of higher
prices, but a lot of overhead supply remains from last December. Though we
expect to see higher prices over the next month or two, a short-term correction
would not be surprising, especially in the Nasdaq, because it is getting a bit
extended. We feel it’s a good risk to be long here, but, as always, keep your
stops in place in case the breakout fails. TRADE WHAT YOU SEE, NOT WHAT YOU
THINK!


Today’s watch list:


DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)

Long

Trigger = above $86.08 (above May 2 high)
Target = $90.50
(prior high of December 2)
Stop = $84.50 (one point below breakout level)

Notes = Trade is discussed in detail in commentary above. Most
importantly, make sure you use the MTG Opening
Gap Rules
if DIA gaps up above its trigger price. This basically dictates we
will wait for a break of the 20-minute high before buying DIA if it opens above
86.08 (its trigger price).


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). Net P/L figures are based on the
quantity of shares represented in the MTG Position Sizing
Model
.

Closed Positions:

    QQQ long (1/2 position from May 2) –
    bought 27.90, sold at 28.19 (avg.),
    points = + 0.29, net P/L = + $52

Open Positions:

    SPY long (1/2 position from May 2) –
    bought 93.03, stop at 91.90, target
    of 95.95, unrealized points = + 0.18, unrealized P/L = + $16

    WMH
    long (from April 23) –
    bought 34.83 (avg.), stop raised to 34.25, target of
    39.25, unrealized points = + 0.37, unrealized P/L = + $36

Notes:

In addition to the trades above, we also sold 1/2 of our EWJ
position for a profit of 29 cents (5% gain) and sold TTH swing trade for a
profit of just over 1 point. Both trades were originally called in the ETF Real-Time
Room
. Still long 1/2 position of EWJ.

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
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 1 to 3 days once a position is
triggered. Updates on open positions are provided daily.


Yours in success,

Deron M. Wagner

Follow us on Twitter

Latest Tweets

@MorpheusTrading