--> The Wagner Daily

The Wagner Daily


Commentary:

After beginning the day with a relatively flat opening, the major
indices quickly broke below the previous day’s low, setting into motion a sharp
selloff that lasted throughout the morning session. By 12 noon EST, the broad
market stabilized and began trading sideways, correcting by time. With the
exception of a false breakdown going into the final hour and a small bounce
during the final thirty minutes, the major indices spent the entire afternoon in
a narrow trading range. Just as indexes don’t go straight up for long durations
of time without correcting, they also don’t go straight down for very long
without correcting either by price or time. In a downtrend, a correction by
price occurs in the form of a bounce (retracement), while a correction by time
occurs when an index consolidates sideways, near the lows. These corrections
occur because the broad market will typically not stray very far from its key
intraday moving averages for too long. Because the morning selloff occurred so
quickly, the sideways consolidation during the afternoon enabled the intraday
moving averages to eventually drop to meet the prices of the major indices. In a
downtrend, a correction by time is more bearish than a correction by price
because it indicates there is not even enough buying interest to generate a
price retracement. Instead, the sellers simply take a break. Below is a
15-minute intraday chart of SPY (S&P 500) that illustrates how yesterday’s
correction by time eventually enabled the 20-period moving average to meet the
price of SPY:

On the chart above, notice how the 98.40 level for SPY acted
as key resistance during the entire afternoon until it finally broke through
during the final 15 minutes of the session. That 98.40 level in SPY correlates
to a price of 980 in the S&P futures. The intraday chart of QQQ and the
Nasdaq futures also had a similar intraday price resistance of 29.80 for QQQ,
which corresponds to 1200 in the Nasdaq futures. Therefore, look for these key
numbers to act as pivot points (areas of support or resistance) going into
today. You may want to jot down these prices so you are aware of whether the
broad market is likely to head higher or lower based on its position relative to
yesterday’s pivot points.

Yesterday’s selloff was the follow-through we
expected from the weakness that began last Thursday, June 19 and yesterday’s
closing prices put the major indices at key support levels. If you recall from
yesterday’s Wagner Daily, we discussed upcoming support of both the
20-day moving averages and the primary daily uptrend line from the lows in
March. Not surprisingly, the major indices found support at these same levels
yesterday. Let’s take an updated look at the daily charts of SPY, QQQ, and DIA
so that you are aware of the new support levels:

We also mentioned yesterday that the 38.2% Fibonacci
retracement
level was converging in the same area as the 20-day moving
averages and daily uptrend lines. To illustrate this, I have annotated a chart
with the Fibonacci retracement levels on SPY. Notice how the 38.2% retracement
acted as support:

As you can see from the charts above, we need to be very
careful on the short side over the next several days because of the key areas of
support near each of the major indices. Bounces often come quickly and without
warning when trading in the area of trendline support that has been in place for
several months. In addition, yesterday’s lighter volume also confirmed that the
selloff was not a mass exodus out the doors. Total volume in the NYSE yesterday
was 17% lower than the previous day, while volume in the Nasdaq was 4% lower.
Even though the Nasdaq has been declining in price for the past several days, so
has the volume. Yesterday was the third consecutive day of lighter volume in the
Nasdaq. In a healthy bull market, this is exactly what you want to see; higher
volume on the up days and lighter volume on the down days. This indicates the
bulls are still in control of the market until volume on the down days suddenly
increases above the volume of the up days.

As you know, the main event
this week is the FOMC meeting in which the Feds are expected to cut rates. The
meeting begins today and runs through tomorrow at 2:15 pm EST. At that time, the
Feds are expected to announce a rate cut of either 25 or 50 basis points. It
seems that much of the market’s recent rally has already priced in a 25 point
cut. If that occurs, there is a good chance that it will be a non-event for the
market and could even have a negative “buy the rumor, sell the news” effect.
However, the bond market is pricing in about a 60% chance of a 50 basis point
cut. While that would probably provide a positive knee-jerk reaction to the
equities markets, it is difficult to say whether it would ultimately be
interpreted as good news because it would have many traders and investors
wondering if the economy is in worse shape than expected. If it was not for the
FOMC meeting this week, we would be comfortable with building long positions
based on the daily support levels illustrated earlier. However, the outcome of
the meeting could affect the technicals of the market. Therefore, we feel it is
relatively low-risk to “dip a toe in the water” on the long side of the market,
especially if you place stops just below daily trendline support. But, consider
keeping your position size small until the rate cut announcement has been made
and the market has had a chance to digest the effects of the outcome.


Today’s watch list:


WMH – Wireless HOLDR
Long

Trigger = above 39.33 (above
high of June 6)
Target = 41.70 (resistance of next Fibonacci extrapolation)

Stop = 38.20 (below the 20-day MA)

Notes = We were stalking the
wireless sector last week, right before it broke out, but we did not take a long
position due to anticipated weakness in the broad market. Now that the broad
market has corrected, WMH is still showing relative strength and has now made a
38.2% Fibonacci retracement to support, providing us with a low-risk entry
point. Also, the high of June 6, formerly resistance, should now act as support
for WMH.

WMH does not trade many shares each day, but remember that all
ETFs are synthetic and will move wherever the underlying prices of its
components move, regardless of supply or demand of the actual ETF. Also remember
that you can more accurately track the fair value of WMH by following $IWH.X,
which is the index for the Wireless HOLDR.


DIA – DIAMONDS (Dow Jones Industrial Average)

Long

Trigger = above 91.05 (above yesterday afternoon’s
consolidation)
Target = 92.10 (just below 50% Fibonacci retracement)

Stop = 90.44 (below yesterday’s low)

Notes = The Dow has shown
relative strength during this correction and DIA has support at this are on both
its weekly chart and 20-day MA on daily chart. Just looking to play a bounce up
to Fibonacci resistance with stop below yesterday’s low.


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:

    (none)

Notes:

The HHH short setup from yesterday was
triggered, but we made the decision not to enter it due to relative strength in
the Internet sector. We were long 1/2 position SPY from overnight, which was
called yesterday afternoon in the ETF Real-Time
Room
.

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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