The Wagner Daily | November 19, 2004

Commentary:

Thursday’s broad market action was rather uneventful, as each of the major indices opened near unchanged levels, spent the entire day trading in a narrow, sideways range, then eventually closed the day near where they began. The S&P 500 Index eked out a 0.1% gain, while both the Nasdaq Composite and Dow Jones Industrial Average gained 0.2%. Total market volume in both the NYSE and Nasdaq was 13% lighter than the previous day’s levels, which was not surprising given the lack of volatility. Advancing volume outpaced declining volume by a narrow margin in both exchanges, which confirmed the slightly positive bias.

Although the broad market was flat, relative strength was found in the Oil Service index ($OSX), which rallied 2.87% and closed at its intraday high. This worked out great because it enabled OIH (Oil Service HOLDR) to close nearly two points above our entry point from Thursday morning’s entry. Interestingly, the Semiconductor Index ($SOX) brushed off yesterday afternoon’s weakness and rallied to close at Wednesday’s high. Most importantly, this means the index also closed above its 200-day MA, which stalled its advance the prior day. The last time the $SOX closed above its 200-day moving average was on June 8, 2004, nearly six months ago, so Thursday’s close above the 200-day MA was quite bullish. The daily chart of the $SOX index below illustrates the closing price above the 200-day MA:

Each of the major indices spent Thursday trading completely within their respective trading ranges of the prior day. When this occurs, it is known as an “inside day,” which simply means the low of the day was above the prior day’s low, but the high of the day was also below the prior day’s high. “Inside days” are common when an index is consolidating, as the broad market appears to be doing since its recent, powerful rally on the daily charts. Looking at the daily and weekly charts, nothing technically changed from the prior day, as Thursday’s range was so narrow. So, as discussed in the November 18 Wagner Daily, we remain quite cautious on the long side, but are not aggressively ready to short either.

Thursday’s biggest news was that the long-awaited Gold ETF finally began trading on the NYSE! The new ETF is named StreetTRACKS Gold Trust, and its ticker symbol is GLD. MTG is excited about its launch because it now gives the average investor or trader the ability to directly participate in buying or shorting the price of the Spot Gold commodity, but without actually having to buy the bullion (as I personally have been doing over the past year). Apparently, many other people were equally as pleased because GLD traded more than six million shares on its first day. Quite an impressive launch for an ETF! According to the GLD article on the Marketwatch web site, “blocks of 100,000 shares are redeemable into gold bullion, and shares should be priced at about 10 percent of the price of a troy ounce of gold.” GLD closed at $44.38 on Thursday, which makes sense because Spot Gold closed around $443/ounce. The best thing about the ETF is that you no longer need to mess around with the gold mining stocks in order to bet on the price of gold. If you regularly trade those stocks, you know how erratically they usually behave. MTG welcomes the introduction of the GLD exchange traded fund and will be incorporating it into the list of ETFs that we regularly trade. Now, when is that Crude Oil ETF coming out?

Today’s watch list:

There are no new plays for today, but we currently have three open positions (long OIH and PPH, short IWM).

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 = + $193

IWM short (from Nov. 18) –
shorted 123.35, stop 125.85, target 119.10, unrealized points = (0.72), unrealized P/L = ($72)

PPH long (from Nov. 15) –
bought 69.75, stop 68.90, target 71.65, unrealized points = (0.26), unrealized P/L = ($26)

Notes:

Both OIH and IWM triggered per yesterday’s newsletter. We have also raised the stop in OIH. Still long PPH as well.

Edited by Deron Wagner,
MTG Founder and
President