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The Wagner Daily


Commentary:

After beginning the day with an opening gap up above the previous day’s highs, the major indices quickly sold off immediately after yesterday’s open. This enabled us to “fade the gap” and profit from shorting QQQ (Nasdaq 100) for a decent gain. However, the selloff was short-lived and the major indices quickly settled into a narrow and choppy trading range that lasted for most of the day. Throughout the afternoon, there was a small amount of selling pressure that caused the major indices to continually drift lower, but there was no conviction on the sell side. Then, true to the pattern we have been seeing over the past week, the buyers stepped in during the final hour, seemingly from nowhere. Unlike previous days, the late day surge did NOT break above resistance of the morning high, but it did cause each of the major indices to close near their opening prices. Without a doubt, yesterday was tricky for intraday trading and the only “no-brainer” was to short the opening gap when it began failing. Other than that, it was a bunch of chop chop!

Since most of the major indices closed yesterday at approximately the same prices they opened, this action created many candlestick chart formations individually known as a “doji star.” When a doji star forms on a daily chart, it often indicates indecision, meaning that neither the bulls nor the bears were in control that day. If the market has been in a trading range, the doji star often does not mean much of anything. However, when a doji star forms after a long run in a particular direction (either up or down), it often is a warning season that the current trend MAY be running out of gas. Given that the major indices still managed to close in the upper third of their intraday ranges, yesterday’s doji stars do NOT necessarily mean the rally is over. BUT, it does indicate a new show of indecision that could potentially lead to a shift in the balance of power from the bulls to the bears, at least in the short-term. When combined with the fact that yesterday’s highs in the broad market failed to break the prior June 6 highs, it becomes even more of a bearish warning signal. Confirmation of this shift in balance of power would occur if the major indices CLOSE BELOW YESTERDAY’S LOWS. In that situation, it would be a good idea to take some short positions overnight in anticipation of follow-through to the downside over the next several days. But, all bets are off on the short positions if the broad market closes above yesterday’s lows. I have circled the “doji stars” on both the Nasdaq Composite and the S&P 500 daily charts below.

Because the Dow Jones Industrial Average was relatively stronger than both the Nasdaq and S&P yesterday, its daily chart looks a little different. Although the Dow also closed near its opening price, it formed a long wick on the bottom of the candlestick with a short wick on top. This candlestick pattern is called a “hanging man” and it means that the bears had control throughout the day, but the bulls managed to drive the price higher into the close. Like the “doji star” formation, the “hanging man” also serves as a warning sign to the bulls. Confirmation would again come in the form of a closing price below yesterday’s low. I have circled the “hanging man” on the daily chart of DIA (Dow Jones Tracking Stock) below:

As we discussed yesterday, remember to trade in the indexes with the most relative strength or relative weakness (depending on which side of the market you’re on). We continue to see sector rotation out of the small caps and into the large caps, as evidenced by yesterday’s strength in the Dow. Also remember that today is a Friday and bulls may look to close out long positions ahead of the weekend. But, if today closes strong and ABOVE the June 6 highs, we will probably make another leg up going into next week. Let’s just trade in the direction of the trend, whichever way that may be. Either way is fine with us! Look for our long-term analysis of the broad market in the next Wagner Weekly, which will be published on Monday.


Today’s watch list:


DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)
Short

Trigger = below 91.45 (below yesterday’s low)
Target = 89.75 (support of June 9 low)
Stop = 92.05 (above yesterday afternoon’s resistance)

Notes = Ready to short the Dow if the “hanging man” confirms the break of yesterday’s low. Otherwise, we won’t short it.



QQQ – Nasdaq 100 Index Tracking Stock
Long

Trigger = above 30.85 (above yesterday’s high)
Target = 31.40 (resistance of June 6 high)
Stop = 30.60 (below yesterday’s close)

Notes = Long setup just in case the market still has more momentum remaining for upside price action.


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:

    OIH long (HALF position from June 12) –
    bought 65.58, sold 65.04, net points = (0.54), net P/L = ($28)

Open Positions:

    OIH long (HALF position from June 12) –
    bought 65.58, stop at 64.50, target at 68.10, unrealized points = (0.14), unrealized P/L = ($8)

Notes:

Per yesterday’s newsletter, we bought OIH on the pullback to support, but we then sold half of the position intraday because it was acting as if Wednesday’s breakout may have been false. So, we sold some shares to reduce risk. Therefore, we now are long a half position going into today. Remember that, based on the MTG Position Sizing Model, a full position of OIH is only 100 shares, so our half position represents just 50 shares.

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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