Commentary:

Yesterday’s session was pretty quiet, as the broad market spent all of yesterday in a choppy, narrow range and eventually closed near the intraday lows. The Nasdaq once again showed the most relative strength and closed flat, while the S&P 500 and Dow Jones Industrial Average closed 0.5% and 0.7% lower respectively. Volume in the NYSE declined by 7%, while volume in the Nasdaq decreased by 10%. Unlike the previous day, yesterday was not a bearish “distribution day” because volume was lighter.

As you may recall, we took a bullish position on many stocks in the Gold and Silver Mining Index ($XAU) in mid-August. At the time, the $XAU had broken support of its weekly downtrend line from the high of January 2004 and we anticipated further upside. After trading sideways for several weeks, the index finally pushed through its prior high from August and is now firmly above its weekly downtrend line. The index has also closed firmly above its 200-day moving average, which had formerly acted as a resistance for the past month. The weekly chart of the $XAU below illustrates this week’s breakout above resistance:

Subscribers to the MTG Real-Time Room already know we entered new positions in our hedge fund when several of the gold and silver mining stocks broke out this week. As you can see on the chart above, the 106 level will act as the next major resistance, as it marks the prior high from April. We intend to maintain our long positions in GG, PDG, AU, PAAS, and CDE until the index tests the prior high near 106. Our stop is below the weekly downtrend line. There is not an ETF that tracks the index, but leaders to consider are: NEM, ABX, AU, GG, PDG, HMY (gold) and PAAS, AEM, CDE (silver).

Going into today, the daily charts look basically the same as when we analyzed them yesterday. Both the S&P 500 and Dow Jones Industrial Average remain below support of their primary uptrend lines from their August lows, while the Nasdaq is hovering right at support of the same uptrend line. The $SOX index closed a bit higher yesterday, which means that its uptrend also remains intact. Therefore, we continue to have a bullish bias on the intermediate-term direction of the Nasdaq, but are much more cautious about being long the S&P and Dow. Today is also Yom Kippur holiday, so expect volume to be on the light side.

---

Today’s watch list:

QQQ – Nasdaq 100 Index Tracking Stock
Long

Trigger = above 35.15
(above yesterday’s high)
Target = 35.90 (resistance of the prior high)

Stop = 34.75 (below yesterday’s close)

Notes = QQQ long did not triggered yesterday, so we are looking for possible entry again today. QQQ has sold off down to support of its uptrend line from the August lows. This provides us with a low risk entry point on the long side.

---

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:

SMH long (half position remaining from Sept. 10 and 17 entries) –
bought 30.13 (avg.), new stop 30.62, target 32.95, unrealized points = + 0.97, unrealized P/L = + $145

Notes:

SMH never hit our adjusted stop yesterday, so we remain long. QQQ traded up to 35.15, but did not trade above it, so it did not trigger for entry yesterday. Therefore, we are watching for potential entry again today.

Edited by Deron Wagner,
MTG Founder and
President