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The Wagner Daily


Commentary:

Going into yesterday morning, we discussed the importance of being
cautious on both sides of the market due to the conflicting signals in which the
major indices were sitting at key pivot points. As you may recall, SPY (S&P
500) broke below support of its daily uptrend line after the Fed decision was
announced on Wednesday. However, both DIA (Dow Jones) and QQQ (Nasdaq 100) were
sitting just above their trendline support. This pointed to the probability of
either a big selloff yesterday if the Dow and Nasdaq also broke their trendlines
or an equal possibility of a perfect bounce of support that would pull the
S&P along with it, and the latter is exactly what happened. The Nasdaq,
which showed leadership yesterday on the heels of strength in the SOX
(Semiconductor Index), bounced perfectly off its trendline support and closed
just above resistance of the previous day’s high. Though the S&P showed
relative weakness to the Nasdaq, it also climbed back above its daily trendline
support, leaving Wednesday’s break to be just a probe below support. It’s not
uncommon for an index to briefly break trendline support and pop right back
above it, and that is why we were so cautious about being short going into
yesterday. Through being patient and allowing the market to show us its next
move, we prevented significant losses that would have occurred if we immediately
went short yesterday morning. Just like the previous day, the Nasdaq closed the
strongest yesterday with a gain of 1.96%, followed by the S&P and Dow (which
respectively closed up 1.08% and 0.75%). We continue to see sector rotation back
into the Nasdaq and out of the “old economy” stocks, giving us the best
risk/reward to be long the Nasdaq and/or short the Dow.

Total market
volume was not as impressive as we should have seen on an upside reversal day.
The Nasdaq volume was flat versus the previous day and the NYSE volume was about
5% lower. However, it is noteworthy that volume in both the NYSE and Nasdaq was
proportionately about 7% higher than the previous day going into 2:15 pm EST
yesterday. But, since a lot of volume hit the markets on Wednesday after the Fed
decision, that prevented yesterday from being a higher volume day than
Wednesday. Just something to consider when assessing volume. Breadth was
positive in both indices with advancing volume outpacing declining volume by 2:1
in the NYSE and 3:1 in the Nasdaq.

On pivotal days such as yesterday, we
have found that the hourly (60 minute) chart is one of the best time frames to
analyze because its interval removes much of the “noise” associated with
shorter-term 5 or 15-minute charts. One of the reasons we were not very bullish
on the S&P or Dow yesterday was due to its resistance of the upper channel
of a downtrend that has been in place since June 18. The hourly chart of the
S&P futures below illustrates this:

The black arrow on the chart above points to the key resistance level we
were watching going into yesterday afternoon. The S&P initially had a tough
time breaking through that level and never convincingly broke out. In fact, it
sold off down to the trendline into the close. Therefore, watch this trendline
going into today. As long as the S&P stays above it, our bias will remain to
the long side. But if the S&P crosses down below that level again, we could
quickly and easily see a reversal of momentum back down to yesterday’s low. If
you draw Fibonacci lines, you will see that the S&P has not even retraced to
its 38.2% retracement from the June 18 high to June 26 low. Therefore, a lot of
overhead resistance remains for the S&P. Also, don’t forget the 20-day
moving averages on those daily charts! Both the S&P (SPY) and the Dow (DIA)
have overhead resistance of their 20-day MAs just above yesterday’s highs. The
Nasdaq closed just a few pennies above its 20-day MA. Bottom line is that if the
broad market holds above yesterday’s highs, the major indices will have broken
back above their 20-day MAs, as well as hourly trendline resistance levels. As
long as volume is decent, confirming the move, our bias will remain on the long
side until the market shows us reason to believe otherwise. As of now, there are
just not many technical reasons to be bearish, but we will keep an eye out for
such reasons.


Today’s watch list:


SMH – Semiconductor HOLDR
Long

Trigger = above 28.65
(above yesterday’s high)
Target = 29.80 (just below prior “swing high”)

Stop = 28.10 (below hourly trendline support)

Notes = The
Semiconductor Index began showing relative strength yesterday after finding
support on the daily chart. We anticipate follow-through over the next several
days.


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 (full position from June 26) –
    bought 30.13 (avg.), sold 30.14
    (avg.), net points = + 0.01 net P/L = ($8)

Open
Positions:

    WMH long (from June 24) –
    bought 39.40, new stop at 38.90, target at
    41.70, unrealized points = + 0.45, unrealized P/L = + $43

Notes:

We bought a full position of QQQ when it broke the previous day’s
high, but momentum stalled. We sold it for a scratch. We are still long WMH and
have raised the stop to 38.90.

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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