The Wagner Daily


As I am sure you are aware, EWJ (iShares Japan) was on fire yesterday! Not only did it close 5% higher on the day, but yesterday’s volume in EWJ was huge! EWJ traded just under 20 million shares yesterday, which is about 600% greater than its average daily volume of 3.3 million shares. By a longshot, it was also the most volume that EWJ has ever traded on a single day! This tells us there is obviously extreme interest in Japan right now and we got onboard before the herd. We now have an unrealized gain of 7% on EWJ, which equates to more than a $400 profit, based on the MTG Position Sizing Model. We remain quite bullish on the the intermediate-term future of Japan and the plan is to continue trailing a stop higher on EWJ. There is simply no reason to exit the position right now. Remember that the key to making big profits is to let your profitable trades run while quickly cutting the losers. Now, let’s recap yesterday’s U.S. market action. . .

The major indices began the day with an opening gap up that followed through the heels of Tuesday’s reversal and subsequent close at the highs. The gap held firmly and the broad market consolidated in a sideways trading range during the first half of the day. The morning trading range was relatively narrow and the S&P futures traded sideways in less than a 5-point range, but this type of action was expected. Indexes and stocks don’t go straight up or straight down for very long. Rather, they pause along the way to correct either in the form of a price retracement or a correction by time, which equates to sideways consolidation. Yesterday morning’s correction by time allowed the intraday moving averages to rise up and provide support from the parabolic run during the previous afternoon. This enabled to major indices to break out of their trading ranges and trend higher in the afternoon session. Although each of the indices technically spent the afternoon in an uptrend, as defined by higher highs and higher lows, the trend was rather sloppy and marked by wide price retracements. For example, on several occasions when the S&P futures broke above resistance and set new highs yesterday afternoon, the subsequent price retracements often went back below the breakout point, which should have acted as support. This sloppy uptrend made it a bit challenging to stay long the broad market intraday unless you were using wide stops or simply “swing trading” with a multi-day time horizon. Nevertheless, the major indices each closed at their intraday highs, firmly higher than the previous day’s closing prices.

Yesterday’s volume was higher than the previous day in both the NYSE (4% higher) and Nasdaq (10% higher), which confirmed the higher closing prices. More importantly, breadth was very positive! Advancing volume outpaced declining volume by a margin of more than 4 to 1 in the NYSE. In the Nasdaq, advancing volume was more than 7 times higher than declining volume! These ratios confirmed yesterday’s bullish market internals. Volume continues to be relatively light on the down days and higher on the up days, which is what you should typically see when a bull market remains healthy.

One of the reasons the major indices had trouble maintaining a smooth uptrend after the afternoon breakout was due to overhead resistance of the 20-day moving averages on both SPY (S&P 500) and DIA (Dow Jones Industrials). Since the 20-day MA formerly acted as strong support, it is only natural that it would equally act as strong resistance when prices approached it from underneath. However, once both SPY and DIA finally pierced through their respective 20-day MAs, the uptrend became smoother as trading entered the final hour. QQQ (and the Nasdaq) showed relative strength to the S&P yesterday because it was already trading above its 20-day MA, thereby having less overhead resistance. As you can see from the charts below, both SPY and DIA are now back above their 20-day moving averages:

If you take a look at the Fibonacci retracement levels we discussed in yesterday’s newsletter, you will also see that both SPY and DIA also struggled intraday at their 50% retracement levels, but both closed higher than their 50% retracements, but lower than their 61.8% retracements. Therefore, the 61.8% retracement levels will continue to act as resistance going into today, while both the 50% and 38.2% retracements should provide price support, as well as the 20-day moving averages. For easy reference, here are the Fibonacci retracement levels for each of the major indices that will likely continue to serve as pivot points today. They were extrapolated by measuring the range from the mid-June highs to the July 1 lows:

DIA – 90.78, 91.40, 92.00

SPY – 98.65, 99.30, 100.00

QQQ – 30.01, 30.25, 30.48

Remember that the U.S. equities markets close at 1:00 pm EST today and will be closed all day tomorrow (Friday) for the Independence Day holiday. There will no publication of The Wagner Daily tomorrow, but regular publication will resume on Monday. Have a safe and fun holiday!

Today’s watch list:

No new plays for today’s shortened trading session. We plan on taking EWJ over the weekend and will re-assess the market on Monday morning for some new swing trades.

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

Closed Positions:

    SPY long (1/2 position from July 2) –
    bought 99.34, sold 99.50, points = + 0.16, net P/L = + $13

Open Positions:

    EWJ long (from June 30) –
    bought 7.30, new stop at 7.30 (breakeven), target at 8.95, unrealized points = + 0.53, unrealized P/L = + $412


We bought SPY per an intraday e-mail update yesterday, but took the profits quickly due to unstable trend. We also raised the stop to breakeven on EWJ (per above)

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

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

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.

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