The Wagner Daily | November 29, 2004

Commentary:

The broad market spent the first ninety minutes of last Friday’s holiday-shortened session in an uptrend, but the lack of volume caused the market to reverse just as quickly. During the final hour of trading, the S&P 500, Dow Jones Industrials, and Nasdaq Composite indices each gave back their earlier gains and closed unchanged on the day. However, each of the indices also closed at their lowest levels of the day, positioning the broad market for a potentially negative start on Monday. Nevertheless, the Nasdaq gained a solid 1.5% for the week. The S&P 500 moved 1.1% higher during the same period.

Total market volume in the NYSE last Friday was 56% lighter than the previous day, while volume in the Nasdaq declined by 59%. If you factor out the shortened session, volume in the NYSE still was 38% lighter than the previous day at 1:00 pm EST. As expected, traders and investors were more concerned with buying holiday gifts than stocks. “Black Friday,” as the day after Thanksgiving is called, is traditionally the biggest retail shopping day of the year.

Looking at the daily chart of the S&P 500, you will notice it attempted to break out above resistance of its prior highs last Friday, but failed and closed unchanged from the previous day. More importantly, the index closed right on support of its primary uptrend line, which has been in place since the low of October 25. Therefore, the performance of the S&P over the next several days will be key in determining its direction in the month of December. The inability of the S&P to close higher over the next 2 – 3 days would result in a break of that uptrend line. Because a “lower high” would also be in place, a break of that uptrend line would likely result in a correction down to its 20-day moving average. If, however, the index manages to hold above support of its uptrend line, it will need to set a “higher high” by breaking resistance of the November 17 high in order to maintain its uptrend. The daily chart of the S&P below illustrates this:

The daily chart of the Nasdaq looks similar, as it too failed after attempting to set a new high last Friday. The Nasdaq, however, is further above support of its uptrend line than the S&P. Take a look:

The Dow Jones Industrial Average remains the weakest of the three major indices, as it was the only one that did not even have enough momentum to rally up to its high from the prior week. On a longer-term basis, the Dow is also showing relative weakness because it is still below its high from the beginning of 2004. The S&P 500, however, is sitting at its highs of the year. Below are longer-term weekly charts of both the S&P 500 and Dow Jones Industrial Average. Notice the divergence between the two indices:

Because the broad market closed at its intraday lows after failing to break out last Friday, we are technically positioned for a weak session on Monday. However, we cannot place much credence into Friday’s action because of the light volume. We won’t know the intentions of the institutions until the new week kicks off. Note that Intel is scheduled to provide its mid-quarter report on Thursday, so action may be slow ahead of that. Also, Wal-Mart reported disappointing Black Friday sales numbers, so keep an eye on the Retailers for potential weakness in sympathy with the WMT news. RTH is the ETF that tracks the retail stocks.

Today’s watch list:

PPH – Pharmaceutical HOLDR
Long

Trigger = above 69.05 (above Friday’s high)
Target = 72.90 (just below prior high of October)
Stop = 67.55 (below last week’s low)

Notes = The Pharmaceutical sector suddenly began showing relative strength on Friday, so we feel this sector may finally be poised to break its downtrend. PPH also has formed a double bottom from the low of November 2. Therefore, we’ll look to buy PPH on a break out above Friday’s high.

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 = ($54)

SPY short (from Nov. 23) –
shorted 117.87, new stop 119.05, target 116.10, unrealized points = (0.48), unrealized P/L = ($96)

Notes:

We remain short both DIA and SPY. Note the new stop on SPY above.

Edited by Deron Wagner,
MTG Founder and
President