The Wagner Daily | December 26, 2003

Commentary:

Due to a knee-jerk reaction to fears of Mad Cow disease, the major indices began Wednesday’s session with a small opening gap down from the previous day’s close. Although certain restaurant stocks remained negatively affected by the news, the broad market overall brushed off the news and promptly stabilized within the previous day’s range. Volatility was extremely low on Wednesday, as the S&P futures spent the entire day trading in less than a 5-point range. Each of the major indices formed an “inside day,” meaning their entire trading ranges fell within their respective ranges of the previous day. Obviously, “inside days” are not ideal for intraday trading because they typically lack the follow-through of a steady trend. Like the previous day, the Dow Jones Industrial Average once again showed relative weakness to the Nasdaq. While the Nasdaq closed in the upper third of the previous day’s range, the Dow closed near the previous day’s low. This benefitted our DIA short position, which we initiated on Tuesday.

Each of the major indices closed fractionally lower on Wednesday, but it’s difficult to read too much in to the action because it was a shortened day of trading that closed at 1:00 pm EST. Even factoring out the early closing time, volume came in much lower than average when comparing it on an hour to hour basis. At just over 500 million shares, volume in both the NYSE and Nasdaq came in just slightly higher than the half-day of trading on the day after Thanksgiving. Breadth was slightly negative as declining volume outpaced advancing volume by a margin of approximately 1.25 to 1 in both the NYSE and Nasdaq. We expect volume to remain much lower than average for the next 4 to 6 days, until after New Year’s Day has passed. Since today is also a holiday-shortened session that closes at 1:00 pm EST, we expect volume to be lackluster and you probably won’t miss much by taking the day away from the markets. Remember that it is very easy to move the market around and take out stops on light volume days because the liquidity is so low.

There’s not much we are excited about until after the low volume of the holiday sessions has passed. The S&P 500 Index and Dow Jones Industrials continue to hang out near their 52-week highs, while the Nasdaq Composite remains stuck in a multi-month trading range, just above its 50-day moving average. The Dow formed a “doji star” candlestick last Tuesday and followed through with a lower close the next day, so it appears the Dow is setting up for at least a minor price correction. The daily chart of DIA (Dow Jones Industrials) below illustrates this:

We also like the daily chart of the CBOE Gold Index ($GOX), which bounced perfectly off support of its 50-day moving average on Wednesday. The chart of $GOX below illustrates this reversal:

On Tuesday, we bought PDG (a leading gold mining stock) for a swing trade in the Intraday Real Time Room and currently have an unrealized gain of 2.0%. We intend to use a trailing stop with PDG in order to maximize profits as long as the $GOX holds above its trendline and 50-day moving average. Gold futures set a new 6-year high on Wednesday, closing just below $413 per ounce. Silver futures also closed at a new high of 5.79 per ounce. The precious metals remain incredibly resilient, regardless of broad market action.

Today’s watch list:

Due to the decreased volume of the holiday-shortened trading session today, there are no new plays. We do, however, have an open position in DIA short, which is listed below.

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 = + $88

Notes:

We remain short DIA with a stop near break-even.

Edited by
Deron Wagner,
MTG
Founder and President