The Wagner Daily | November 4, 2003

Commentary:

The S&P 500 Index, Dow Jones Industrials, and Nasdaq Composite each closed at new 52-week highs yesterday, as the broad market broke out of last week’s consolidation and followed through to the upside. Volume was 14% higher in the Nasdaq, but came in 5% lighter than the previous day on the NYSE. Considering the breakout to new 52-week highs, it was a bit surprising that volume did not correspondingly surge higher on the NYSE. But, then again, the lighter volume described yesterday’s general market tone. Basically, the broad market did what the charts were indicating it was “supposed” to do, and that is to break out to new highs. However, the breakout lacked conviction and the major indices had a very difficult time sustaining the new highs. In fact, each of the broad-based ETFs sold off significantly, immediately following the 4 pm close (broad-based ETFs trade until 4:15 pm each day). Below is an intraday chart of DIA (Dow Jones Industrials). Notice the indecision and weakness in the late afternoon:

The daily chart of QQQ (Nasdaq 100 Index) further illustrates the difficult time the major indices are having in breaking out to a new high, as they have done after preceding bounces off the 50-day moving averages. Notice a triple top that is forming on QQQ, right around the 35.85 area:

Regarding individual sectors, the Semiconductors (SMH) were a clear leader and closed at a new 52-week high yesterday. However, relative weakness in the Biotechs (BBH) held the Nasdaq down while the Semis tried to push it higher. Also of note was the CBOE Gold Index ($GOX.X), which sold off yesterday, but closed just above support of its 50-day moving average. Gold has been in a strong uptrend since March and the index has bounced off the 50-day MA on every previous attempt. The chart of the Gold Index below illustrates yesterday’s bounce off support:

Based on the recent strength of the gold stocks, be on the lookout for a rally off this support level over the next few days. Although there is not yet an ETF that tracks gold stocks, you can create your own ETF by trading a basket of the leading gold stocks. Some of the gold stocks I commonly trade are: NEM, ABX, GFI, AU, and PDG.

Yesterday marked the official launch of the new format for the Intraday Real-Time Room. We entered and exited four different intraday stock trades and netted a solid profit in the first day. We realized gains in NVLS long and EBAY long, scratched in MOT, and had a small loss in NEM short. We’re excited about the new intraday trading of individual stocks, as well as ETFs, so e-mail us if you are an active intraday trader and would like a free trial to the room (limit one per client).

The technical bias is on the long side as we enter today, but we continue to feel that caution is in order. The market feels heavy every time it breaks out to new highs, but yet it grinds higher regardless. This type of action makes it very tricky to SWING trade the broad-based ETFs and is the kind of action that often leads to sharp and sudden reversals without warning. So, while we think the odds favor the long side of the market, your odds are probably better if you swing trade individual sector ETFs, rather than the broad-based ones. If yesterday’s highs are broken CONVINCINGLY and on STRONG VOLUME, buying SPY, DIA, or QQQ is probably a good risk/reward, just as long as you use tight stops below the breakout levels.

As we saw yesterday and throughout last week, intraday reversals have become so frequent and numerous that each new swing trade, whether long or short, is exposed to a higher than usual degree of intraday and day-to-day noise. You may feel pressured to increase your risk exposure because you’re hearing the press talk about new highs on the year and a bull market. As is often the case with the press, the real situation is much more complex if you drill down and look at the nuances of the price action. The actual day-to-day situation is much more challenging than what they describe to the general public. This is not yet a good environment in which to enter an abundance of new trades. Capital preservation needs to be your number one priority right now, so simply focus on selective trading with light share size until the market gives us a good, solid reason to step it up a notch. Rather than aggressively entering new trades here, we will instead focus on managing the two open positions in OIH and PPH long.

Today’s watch list:

There are no new trade setups for today. Instead, we will focus on managing existing open positions below. If we enter any new positions, we will e-mail you an alert.

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:

unrealized P/L = + $18

PPH long (from November 3) –
bought 74.28, stop at 73.50, unrealized points = (0.46), unrealized P/L = ($46)

Notes:

Our stop is still at 54.90 in OIH, but we will use the MTG Opening Gap Rules to manage the position in the event of an opening gap down below the stop price. If OIH gaps down below the stop price, we will only sell if it breaks the low of the first five minutes. PPH also triggered yesterday and stop is listed above.

Edited by Deron Wagner,

MTG Founder and President