The Wagner Daily | November 26, 2003

Commentary:

Yesterday
was a mixed and relatively flat session that enabled the major indices to digest
the gains of the previous day. The broad market spent most of the day trading
sideways in a narrow range as it consolidated at the highs of the previous day.
The major indices briefly broke out to new intraday highs during the final 90
minutes of trading, but the breakout failed and the indices saw selling pressure
into the close. The weakness at the end of the day caused the Nasdaq to drop
from its intraday high down to its intraday low within the final 45 minutes of
trading. The S&P 500 and Dow Jones Industrials also sold off slightly, but
both showed relative strength to the Nasdaq and closed in the middle of their
intraday ranges. Volume came in a few percentage points higher than the previous
day in both the NYSE and Nasdaq, but was still below its 50-day average. Breadth
was slightly positive as advancing volume beat declining volume by 2 to 1 in the
NYSE and 7 to 5 in the Nasdaq. The mixed performance and consolidation caused
the S&P 500 and Dow Jones Industrials to each close 0.2% higher, but the
Nasdaq Composite closed 0.2% lower. Overall, not much happened yesterday, which
is typical on the next day following a large rally.

In yesterday’s
Wagner Daily, we discussed the “chop zone” that formed in the major
indices during the first several weeks of November. This was the multi-week
trading range in which the indices refused to break out to new highs, but also
held their ground and failed to sell off. The end result during that period was
an abundance of erratic intraday trend reversals that marked numerous failed
breakouts and breakdowns; hence we named it the “chop zone” because of how
choppy the trading conditions were. Unfortunately, the major indices are now
once again back in that zone of congestion from the first several weeks of
November, which means we are likely to experience more of the same choppy
conditions UNLESS volume picks up and definitively pushes the broad market to
new 52-week highs, or firmly below last week’s lows and the 50-day moving
averages. Below are daily charts of SPY (S&P 500 Index), QQQ (Nasdaq 100
Index), and DIA (Dow Jones Industrial Avg.) that illustrate the “chop zones”:

Looking at the chart of SPY above, the resistance level to watch is the
high of November, which is 106.95. Support is found from the 104.85 to 105.30
area. Notice how the 20-day moving average is just slightly above the lower
channel of the “chop zone.” The 20-day MA also marked yesterday’s low in SPY.
Next, take a look at QQQ:

The high for QQQ is 36.18, which was set on November 7. This high marks
the upper channel of the “chop zone,” while the lower channel of support is in
the range of 34.85 to 35.10. Like SPY, yesterday’s low in QQQ correlated with
its 20-day moving average. Notice, however, how much the Nasdaq has lagged
relative to the S&P during the most recent rally.

Notice how DIA is the only one of the three major ETFs that has not been
able to close above its 20-day moving average during the most recent rally.
Instead, it is running into resistance at its 20-day MA, which also correlates
to the lower channel resistance of the “chop zone.” With the Dow lagging so
much, it has been acting as a drag on the S&P. Continue to watch the Dow
closely because, even though only 30 stocks comprise the index, it is a closely
watched index by the general public.

Needless to say, we continue to see
no reason to be overly aggressive on either side of the market until the indices
break out of their respective “chop zones” illustrated above. While there may be
potential day trades during this time, your odds of success are decreased if
attempting to swing trade the broad-based ETFs while in this zone. Like we
mentioned yesterday, you will probably find more follow-through in some of the
sector-specific ETFs such as SMH (Semiconductor), BBH (Biotech), or RTH
(Retail). We bought OIH (Oil Service) yesterday because its chart was showing a
more clear reversal pattern than any of the broad-based ETFs.

As you are
probably aware, note that the U.S. equities markets will be closed on Thursday,
November 27, in honor of Thanksgiving Day. The markets will also close early at
1:00 pm EST on Friday, November 28. Due to the holiday, The Wagner Daily
will not be published on Thursday, but regular publication will resume on
Friday, November 28.

Today’s watch list:

HHH – Internet HOLDR
Short

Trigger = below 45.28
(below yesterday’s low)
Target = 42.50 (retest of prior lows)
Stop =
46.40 (above yesterday’s high)

Notes = HHH sold off yesterday into the
close after it ran into resistance of the upper channel of its downtrend (see
chart above). In addition, it has closed at convergence of its 20 and 50-day
moving averages. All of these factors should act as major resistance to push HHH
lower from here, but we will only sell short upon confirmation of resumption of
the downtrend. This would occur once HHH breaks below yesterday’s low.
Otherwise, we have no interest in shorting it. Remember you can track the price
of $HHI.X, which is the index for the Internet HOLDR. You trade HHH, but track
the price of its index for more accurate pricing.

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 (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 = + $25

EWJ long (1/2
position, averaged from Nov. 17 and 19) –
bought 8.66 (avg.), stop at 7.90,
unrealized points = + 0.18, unrealized P/L = + $72

Notes:

We bought OIH at 54.50 when it triggered yesterday
and remain long EWJ (1/2 position).

Edited by Deron Wagner,
MTG
Founder and President