The Wagner Daily | May 22, 2003

Commentary:

After a small opening gap down yesterday morning, the major indices
briefly sold off before finding support above the previous day’s lows. From that
point through the remainder of the day, the market remained in a narrow and very
choppy trading range that was encased by the highs and lows of the previous day
(May 20). Both SPY (S&P 500) and DIA (Dow Jones Industrials) oscillated from
their intraday lows up to their highs and back down again, then repeated that
cycle over and over. By the end of the day, both SPY and DIA had formed
ascending triangle patterns on an intraday basis, meaning that higher lows were
set during each selloff. The 15-minute chart of SPY below illustrates
yesterday’s choppy trading range and ascending triangle formation:

Although the 15-minute intraday chart of SPY shows a bullish ascending
triangle, the hourly chart shows merely a consolidation within the range of the
previous day. QQQ (Nasdaq 100) significantly lagged both the S&P and Dow as
it showed relative weakness throughout the entire day. Total market volume was
modest and did not really give us many clues for the coming days. Overall, it
was quite a boring and uneventful trading day! We handled it perfectly by doing
absolutely nothing, which saved us a lot of capital by preventing us from
getting “chopped up.” There’s no sense to entering trade setups that are not
clearly defined. Rather, it’s always better to wait in cash and let the market
present the next opportunity to you rather than trying to force it to happen.

Despite the bullish ascending triangle that SPY formed yesterday, keep
in mind that the major indices broke support of their daily uptrend lines this
week and now have resistance of their 20-day moving averages overhead. This does
not mean that the market will not eventually rally back to test last week’s
highs. However, it does mean there is a lot of overhead resistance that will
require a large quantity of buyers in order to overcome and absorb the supply.
Unfortunately, because the market is closed Monday for Memorial Day, it does not
seem likely that volume will increase for the remainder of this week. Many Wall
Street traders will start their weekend today or tomorrow, meaning we will
probably see a gradual decrease in volume through the rest of this week until
the market re-opens next Tuesday. Remember that volume is the most reliable and
important technical indicator at your disposal, so be careful buying a strong
rally or shorting a selloff that occurs on light volume this week. It doesn’t
mean you cannot participate in the market, but I recommend reducing your share
size and using tighter stops than usual unless volume picks up.

Today’s watch list:

EWJ – iShares Japan Fund
Long

Trigger = HALF above
6.65, HALF above 6.73 (HALF above yesterday’s high, add over 20-week MA)

Target = 7.15 (resistance of 50-week MA)
Stop = 6.55 (failure of 20-week
MA break)

Notes = EWJ did not trigger yesterday, but we’re still looking
for an entry. We plan on scaling in with half positions as we get more
confirmation (see trigger prices above). We’ve been stalking EWJ ever since we
sold into strength for an 8% gain a few weeks ago. It has now corrected and is
showing signs of heading back higher, so we’re ready to re-enter if it confirms.
Make sure you consult the MTG Position Sizing
Model for proper sizing.

We are also watching OIH, which broke out to a new 11-month high
yesterday, for a potential long entry. However, we don’t have an exact trigger
price in mind because we want to see if the breakout holds today (we think it
will). Will send an e-mail update if/when we buy it for a swing trade

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:

net P/L = + $11

Open Positions:

(none)

Notes:

We covered the QQQ short position in the
morning and that was all we did the remainder of the day. No overnight
positions.

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