The Wagner Daily | June 25, 2004

Commentary:

The broad market spent the first half of yesterday consolidating just above the previous day’s highs, but a minor selloff in the afternoon caused the S&P 500, Dow Jones Industrials, and Nasdaq Composite to each close with losses of 0.3%. Given the considerable gains of the prior two days, it was normal and healthy to see a small correction yesterday. Total market volume was about 4% higher than the previous day during the morning session, but tapered off when the indices sold off in the afternoon. For the day, volume declined by 3% in the NYSE and 6% in the Nasdaq. Despite lower closing prices, the number of advancers beat the decliners, meaning breadth was positive yesterday. So far this week, we have had two “accumulation days” (higher closing prices on higher volume), and two days in which the broad market closed lower, but on lower volume. This, of course, is exactly what you want to see in a healthy bullish market — higher volume on the “up” days and lighter volume on the “down” days. Furthermore, many individual stocks have broken out of bases and are consolidating at their highs. When leading stocks are breaking out to new highs, it usually pulls the broad market higher as well.

In yesterday’s newsletter, we discussed the 1,146 – 1,147 area as being resistance on the S&P 500 Index. Interestingly, the S&P rallied exactly to that level yesterday, then reversed and headed lower in the afternoon. The daily chart of the S&P 500 below illustrates this:

The 1,146 area is key resistance because it represents the prior high that was set while the S&P was in its former downtrend. After rallying above a downtrend line, as the S&P did on June 7, the next significant resistance level is typically the prior high that was set while the index was in a downtrend. In this case, that corresponds to the April 27 high at 1,147. So, watch that level going into today because a push above that would represent the first “higher high” after the downtrend line was broken, which would be bullish.

One sector that deserves attention right now is Gold/Silver Mining ($XAU), which just broke out above key resistance yesterday. For the first time since April 27, Spot Gold futures closed above $400 per ounce yesterday, which also puts gold back above its 200-day moving average. The rally in the price of gold also pushed the gold mining stocks higher. Below are daily charts of Spot Gold and the $XAU index:

As you can see, this was a significant breakout in the index and you may consider taking long positions within the sector. The Gold ETF has still not been launched in the U.S. yet, but you may wish to create you own synthetic ETF by simultaneously trading a small basket of the leading gold stocks. Gold stocks to consider are: ABX, NEM, GG, PDG. Silver stocks may also make a run, and PAAS looks the best within that sector.

Today’s watch list:

There are no new plays for today, although we remain long SMH. Consider the gold stocks, as mentioned above.

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 = + $45

Notes:

We remain long SMH.

Edited by Deron Wagner,
MTG Founder and
President