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The Wagner Daily


Not much happened in the broad market yesterday as the S&P and Dow both spent the entire day trading sideways, consolidating just below their respective highs of the previous day. When the closing bell rang, both the S&P and Dow closed nearly flat on the day. Because both of these indices traded below their previous day’s highs, but above the previous day’s lows, yesterday was known as an “inside” day. Inside days tend to be incredibly boring for trading the broad market intraday because not much is happening. However, since the consolidation was within the upper third of the previous day’s range, we would consider yesterday to be a “correction by time” that allowed the moving averages to catch up from the previous day’s afternoon reversal. This increases the odds of at least a minor breakout and trending day today.

The most action yesterday, if you want to call it that, was found in the Nasdaq, which showed relative strength to both the S&P and Dow throughout the entire day. Unlike the “inside” days of the S&P and Dow, the Nasdaq broke above the previous day’s highs and trended slightly higher throughout the day. This was due to strength in the Semiconductor (SOX) Index, which has been the leading sector of the past week, although the Biotechs (BTK) were basically flat. Wireless stocks also showed strength yesterday, while Financials and Oil stocks were weak. Both the S&P Mid-Caps (MDY) and Russell Small-Caps (IWM) also showed relative strength to the Dow and S&P 500 yesterday. Below are two intraday (15-minute) charts that illustrate the divergence between the SPY (S&P 500 Index) and QQQ (Nasdaq 100 Index):

Looking at the two charts above, you should be able to clearly distinguish the relative strength that was present in the Nasdaq when compared to the S&P 500 yesterday. Our goal each day in the ETF Real-Time Room is to quickly identify which sectors and indices are showing relative strength or weakness and initiate intraday trades based on such information. Although charts and other technical analysis help confirm our actions, the best risk/reward for intraday trading can usually be found simply through buying the sectors with relative strength (which usually continue to trend higher) and/or shorting those with relative weakness (which usually continue to trend lower). Obviously, neither SPY or DIA were ideal for trading yesterday because both were flat, whereas QQQ and SMH (Semiconductor HOLDR) trended higher intraday.

Not much information can be gathered from yesterday’s total market volume, which came in lower than the previous day. As we have been mentioning, we expect volume to remain below its 50-day moving average until after the Labor Day holiday on Monday. Once volume begins increasing, we can thoroughly analyze whether volume is heavier on the buy or sell side in order to assist in predicting the market’s next big move. But, that information is not reliable right now because of the light volume.

Since the broad market has been in a relatively narrow trading range over the past few days, we expect today’s economic data, due out before the bell, to push the market out of the range in either direction. Jobless Claims and GDP are both scheduled to be released at 8:30 am EST, so watch the pre-market futures action for a hint of the opening buying or selling pressure. Also, remember that the U.S. equities markets will be closed on Monday for the Labor Day holiday. Monday is also the final day to sign up for the “early-bird” pricing of the MTG Live ETF Trading Workshop in Orlando, Florida, which will be held at the Wyndham Walt Disney World Resort. Click here for more details or to reserve your seat.

Today’s watch list:

WMH – Wireless HOLDR

Trigger = above 40.35 (above the daily consolidation)
Target = 42.70 (resistance of the December, 2002 high)

Stop = 39.60 (below yesterday’s low)

Notes = The Wireless Sector has been showing relative strength the past several days and is now poised to break major resistance on its daily and weekly charts. Notice also that yesterday’s volume in WMH was about 800% higher than its average daily volume, so there is institutional interest brewing. If you are not familiar with WMH, you may want to check out www.holdrs.com to learn about the underlying components that comprise it. Finally, remember that $IWH.X is the index that tracks the price of WMH, so you can get a fair value quote without the wide spread.

UTH – Utilities HOLDR

Trigger = above 70.75 (above the daily consolidation)
Target = 72.95 (resistance of the 61.8% Fibo retracement)

Stop = 69.70 (below yesterday’s low)

Notes = Not surprisingly, UTH did not trigger per yesterday’s newsletter. However, we still like the setup and are keeping it on today’s watch list with the same parameters. Original comments from yesterday follow. . .

Although it may not break out today, we like the way UTH has been forming a base of consolidation just above its 20-day moving average. If it does finally break out, we expect it to easily run a few points due to the base of support that has been built. Also, if you look at the WEEKLY chart of UTH, you will see that it is poised to break resistance of a multi-year downtrend, meaning we may want to be patient with this play and attempt to trail the profits longer.

Be aware that UTH often has a wide spread and you definitely want to use limit orders when trading it. More importantly, remember you can use its index to more accurately know where to place your limit order based on the fair value of its underlying components. The index for UTH is $XUH.X, which can be charted just like UTH. Because of the wide spreads, we use alarms to alert us of an entry price, rather than a mechanical buy stop order. Also keep in mind that we account for the volatility of UTH by reducing our share size, since it has a multiplier ratio of only 0.5, based on the MTG Position Sizing Model.

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:


Open Positions:

    PPH long (from Aug. 26) –
    bought 73.27, new stop at 72.90, target of 75.05, unrealized points = + 0.05, unrealized P/L =
    + $5


Still long PPH from August 26. Note the new stop price.

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

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