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The Wagner Daily


Commentary:

Yesterday, the major indices gapped up and opened just below the highs of last week’s trading range. As anticipated, the gap held firm and the S&P, Dow, and Nasdaq each rallied above last week’s highs within the first fifteen minutes of trading. The S&P and Dow both trended steadily higher throughout the first hour of trading, at which time both indices entered into a sideways trading range that lasted the remainder of the day. After peaking around 10:30 am EST, the Dow began trending slightly lower and continued throughout the afternoon. The Nasdaq, on the other hand, not only held its morning gains, but actually continued to trend higher throughout the entire day, eventually closing at its intraday high. The Semiconductor (SOX) index was very strong yesterday, which was largely responsible for powering the Nasdaq. If you closely followed yesterday’s action in each of the three major indices, you would see a continuation of the same pattern we have been seeing lately: relative strength in the Nasdaq and relative weakness in the Dow. This pattern of leadership in the Nasdaq is one sign that the current bull market is not yet ready to end. More importantly, the longer-term weekly charts of the major indices continue to look healthy, despite the minor correction on the daily charts.

It is difficult to accurately compare yesterday’s total market volume to the previous day because of last Thursday’s holiday-shortened session. However, volume was decent across the board yesterday, coming in just below its 50-day moving average on both the NYSE and Nasdaq. Breadth was positive yesterday, as confirmed by the sharply positive advancing volume to declining volume ratios. Advancing volume outpaced declining volume by a margin of 4 to 1 in the NYSE and 5 to 1 in the Nasdaq. This helps to confirm yesterday’s broad market rally, although we really need to pay close attention to the relative volume on the next day the major indices close lower. As we have frequently discussed, bull markets need to be marked by lighter volume on the consolidation and down days, and higher volume on the up days.

In case you did not notice, the Nasdaq Composite (COMPX) and Nasdaq-100 (NDX) both closed at new 52-week highs yesterday. It was the first time COMPX closed above 1700 since May 20, 2002. QQQ closed above resistance of its prior high of 31.47, which was set a month ago, on June 6. Those prior highs in the Nasdaq should now act as a support when the index corrects. This, in turn, should provide the momentum necessary for SPY (S&P 500 Index) to at least re-test its mid-June highs around the 102 area. We bought SPY at 99.89 when it broke resistance yesterday and are maintaining our target of 102, based on an expectation of at least testing the prior highs over the next several days. Obviously, QQQ is a good play as well, especially if it retraces back down to its breakout point, which should now act as support. We would, however, recommend caution with being long DIA because the Dow has been showing relative weakness lately. Remember to always put the odds in your favor by being long the sectors or indexes with the most relative strength and shorting those with the most relative weakness. Over the long-term, bucking the trend is typically a losing game.

If you followed our lead and bought EWJ on June 30, I am sure you are very pleased! The Nikkei has been on fire lately, and I am becoming more convinced that Japan is on the verge of entering into a sustained bull market that has the potential to last for a year or more. The biggest change I have noticed is that, inverse to the usual trend, the Nikkei has been leading the U.S. markets, as opposed to the other way around. There have been several days over the past two weeks when the Nikkei has closed significantly higher in the overnight session on days when the U.S. markets closed lower. Yesterday was a good example of that. Last night, the Nikkei traded above the 10,000 level for the first time in a year, although it closed below that psychological resistance level. Because EWJ has gained 11% since our June 30 entry, we took some profits off the table yesterday by closing half of the position. However, we remained long half the EWJ shares in case the parabolic run continues for a few more days. To maximize gains, we have trailed the stop up to 7.95, just below yesterday’s low.

As a final note, remember that earnings season is getting underway this week and any shocks to the system could have the usual effect on the markets.


Today’s watch list:

Since we currently have three open positions, there are no new trade setups for today. Instead, we will focus on micro-managing our open positions. As always, we will e-mail you any intraday updates or changes.


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:

    EWJ long (1/2 position from June 30) –
    bought 7.30, sold 8.08 (avg.), points = + 0.78, net P/L = + $301

    SPY long (1/2 position from July 7) –
    bought 99.89, sold 100.78, points = + 0.89, net P/L = + $86

Open Positions:

    EWJ long (1/2 position from June 30) –
    bought 7.30, new stop at 7.95, target at 8.95, unrealized points = + 0.81, unrealized P/L = + $318

    SPY long (1/2 position from July 7) –
    bought 99.89, new stop at 100.35, target at 102.10, unrealized points = + 0.81, unrealized P/L = + $79

    WMH long (from July 7) –
    bought 40.51, new stop at 39.90, target at 42.60, unrealized points = + 0.56, unrealized P/L = + $54

Notes:

Per intraday e-mail alerts, we took profits on half the EWJ position yesterday, leaving us with 1/2 position remaining. We also bought SPY per yesterday’s Wagner Daily, sold half the position to lock in gains, and took the second half of the position overnight. We also bought WMH and are long full position overnight.

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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