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The Wagner Daily


Commentary:

Yesterday was a quiet and uneventful day of trading as the major indices traded in a relatively narrow and choppy range throughout the entire day. Despite several intraday tests of the previous day’s lows, the broad market saw mild buying interest during the final hour of trading which pushed the major indices above the flat line into the close. However, it is important to point out that total market volume was 16% lighter in the NYSE and 18% lighter in the Nasdaq. Nevertheless, Monday’s selling momentum and distribution day in the Nasdaq could have easily carried into yesterday, but the major indices showed resiliency by recovering about 50% of the previous day’s intraday losses. Relative strength could clearly be seen in the Semiconductor sector and the SOX index closed up more than 2.6% on the day. Interestingly, the SOX was basically the weakest sector during the previous day’s selloff. Since the SOX is often a market barometer that leads the broad market, the Nasdaq followed the Semiconductor lead and closed stronger than both the Dow and S&P 500. Overall, there was not much happening yesterday and it was the kind of day that was equally difficult to profit from either the long or short side of the markets.

Because yesterday’s trading session was rather dull, there are not many additional levels to watch that I have not already discussed within the past several days. For one, remember that the major indices are each still hovering right at their 50% Fibo retracement levels, as discussed in the June 2 newsletter. It may be a good idea to click on the link and review those important levels before going into today’s trading session because they still remain quite valid. While the S&P 500 is just barely above its 50% retracement, the Nasdaq Composite is basically sitting exactly on its 50% retracement level.

In addition to the Fibonacci retracement levels, pay close attention to resistance that was created when the broad market sold off on Monday, June 2. While the major indices recovered part of Monday’s intraday losses, the highs of June 2 now stand as clearly defined overhead resistance. The chart of QQQ below illustrates this resistance level:

Although only QQQ is pictured above, each of the major indices have similar looking charts. If the major indices break through their respective June 2 highs convincingly, on strong volume, then we want to be long because we could see a potentially strong move to another leg higher in the broad market. On the downside, watch yesterday’s lows in the broad market to serve as support, especially because many sectors and indices formed a double bottom off the June 2 lows yesterday. If these lows are broken, we could see a significant selloff that would take the major indices down to the lower channel support of their daily uptrends, right around the 20-day moving averages.

In order to assist you in the key levels to watch, below is a table of the primary support and resistance levels we are watching on each of the major indices today. Bias will be to the short side below the support levels and to the long side above the resistance levels. If we remain in the range, your best bet is probably cash (except for swing trades). We recommend you print out the table below for easy reference:

Index Support Resistance
S&P futures 963.50 973.30, then 979.40
Nasdaq futures 1180 1202, then 1215.50
SPY 96.85 97.84, then 98.45
DIA 88.80 89.69, then 90.27
QQQ 29.30 29.88, then 30.20

Remember also that all eyes are on Dow 9000 because of the psychological importance of the number. Therefore, keep a close eye on the Dow as a gauge of market direction. If the Dow breaks 9000 and holds, look out above. However, it seems that, at least for now, this is serving as a resistance level in the markets. The Nasdaq futures are also forming a head and shoulders on the hourly chart, that started forming on May 29. The top of the shoulders is around 1200, with the top of the head at 1215.50. The neckline is the 1180 support level. If we break 1180, this is clear short setup. Also remember that June 2 was the first CLEAR distribution day (institutional selling) we have seen in the Nasdaq in several months and volume NEVER lies.

The bottom line is that most of the daily charts are still showing overbought conditions, meaning that the risk/reward favors either being in cash or initiating small short positions. However, remember that overbought conditions can REMAIN that way for several more days. Therefore, merely having overbought conditions is NOT reason enough to be short without some other type of confirmation. Be aware that the U.S. stock markets are at a crossroad right now. We feel that to be aggressively long OR short at this key juncture is foolish. This does not mean you cannot test the waters with a few positions (either long or short), but play it smart and keep your share size small until you receive confirmation of either a breakdown or breakout before. Above all else, remember that your primary goal at ALL TIMES should be to PRESERVE YOUR CAPITAL, NO MATTER WHAT YOUR “OPINION” OF THE MARKET IS. As long as you keep losses tight when you’re wrong, you can be wrong hundreds of times in the course of a year and still realize a nice profit (assuming you also let your winners ride).


Today’s watch list:

Since we are already in three open positions, there are no new plays for today. We will focus instead on managing our open positions, but will alert you if we spot any other low-risk trade setups out there.


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:

    (none)

Open Positions:

    EWJ long (DOUBLE position size from May 22 and June 2) –
    bought 6.83 (avg.), stop at 6.65, target of 7.70, unrealized points = + 0.09, unrealized P/L = + $120

    HHH short (from June 3) –
    shorted 36.65, stop at 37.80, target of 34.80, unrealized points = (0.04), unrealized P/L = + ($10)

    IWM short (from June 3) –
    shorted 88.04, stop at 89.60, target of 85.10, unrealized points = (0.73), unrealized P/L = + ($75)

Notes:

We entered both HHH and IWM short per yesterday’s Wagner Daily. There are no changes to either the stop or target prices going into today. We will, as we always do, e-mail you an alert if our plans change in any way. We also remain long a double 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

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