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The Wagner Daily


Commentary:

The major indices spent most of yesterday in a tight, sideways range in anticipation of the FOMC decision on interest rates that was scheduled for 2:15 pm yesterday. As widely expected, the Feds raised rates by a quarter point and hinted at the likelihood of a further increase in the February meeting. Interestingly, the broad market brushed off the announcement and closed slightly higher than where it was trading pre-FOMC announcement. Both the S&P 500 and Dow Jones Industrials gained 0.4% yesterday, while the Nasdaq closed 0.5% higher. Total market volume in both the NYSE and Nasdaq rose by 8%, which is positive considering the major indices also closed higher.

It now appears the Nasdaq Composite is at a “make it or break it” point. Yesterday’s closing price of 2,159 was a new multi-year high, as the last time the index closed above 2,153 was July of 2001. During the past two weeks, the prior high of 2,153 (from January of 2004) has acted as a key resistance level, but the Nasdaq finally managed to close above it. Due to the lack of overhead supply, the Nasdaq could now be positioned for another sustainable move to the upside. However, the reason we say the Nasdaq is at a “make it or break it” level is because the index still needs to contend with the intraday highs from the first week of December. Yesterday’s closing price of 2,159 was a new closing high, but the index traded up to 2,164 on an intraday basis several times in early December. The red horizontal line on the daily chart below illustrates the real breakout point to look for:

The Semiconductor Index ($SOX), which has been lagging the broad market for quite a long time, suddenly began showing relative strength yesterday. The Nasdaq Composite only gained 0.5% yesterday, but the $SOX closed 1.8% higher. If the strength continues in the $SOX, it will likely pull the Nasdaq higher as well. However, the $SOX will once again need to contend with overhead resistance of its 200-day moving average, which has converged with prior support (now resistance) of the 20-day moving average. The daily chart of the $SOX below illustrates how the index bounced off support of its 50-day moving average, but now has overhead resistance of both the 20 and 200-day MAs:

Although not pictured on the daily chart above, remember the $SOX also has resistance of the much more powerful 200-WEEK moving average at the 450 level. The 200-week MA also corresponds to resistance of the prior “swing high” from the beginning of December. A breakout above 450 would obviously be quite bullish, but don’t get too excited until it actually happens. We’ll be ready to buy SMH (Semiconductor HOLDR) if the $SOX does indeed break out from here.

Another sector that is poised for a solid breakout is the Pharmaceutical Index ($DRG), which closed at a nine-week high yesterday. Since forming a “higher low” when it corrected the week of November 26, the index has been consolidating near its highs of the multi-week range. If the index rallies above yesterday’s high, it will also represent a breakout above its primary weekly downtrend line, which has been intact since February! The weekly chart of $DRG below illustrates this:

Because of this setup, we bought PPH (Pharmaceutical HOLDR) yesterday in anticipation of the breakout. Buying at the current price provides us with a very positive risk to reward ratio, so we feel good about the play.

In summary, both the S&P 500 and Nasdaq Composite are now sitting at fresh 52-week highs, but the Dow still remains below resistance of its prior highs from February. When each of the three major indices are in sync with each other, odds of a trending market are much greater. But, if one index is lagging behind, it can often cause choppy trading conditions in the broad market. Therefore, watch the Dow carefully to see if it stalls at the current level or whether it too can break out to a new high. As the weekly chart below illustrates, the 10,750 area is the resistance level:

The broad market’s reaction to the increase in interest rates was minimal yesterday, but history has shown us the market often does not react to Fed meetings until the following day. This is because it usually takes a day in order for traders to digest the implications of the Fed’s comments. The daily and weekly charts of the major indices continue to look bullish, but remain vigilant because the stock market often reverses when the least number of traders and investors expect it to.


Today’s watch list:

There are no new plays for today. However, per Intraday E-mail Alert to subscribers, we bought PPH yesterday. We also remain long BBH and short 1/2 position of QQQQ.


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:

    PPH long (from Dec. 9) –
    bought 70.45, stop 69.15, target 75.10, unrealized points = + 0.51, unrealized P/L = + $51

    BBH long (from Dec. 9) –
    bought 146.60, stop 141.70, target 160.20, unrealized points = + 0.01, unrealized P/L = + $1

    QQQQ short (HALF position, from Dec. 7) –
    shorted 40.09, new stop 40.68, target 37.80, unrealized points = (0.19), unrealized P/L = ($38)

Notes:

Per Intraday E-mail Alert, we bought PPH yesterday afternoon. We also adjusted the stop slightly in QQQQ due to the FOMC meeting and typical associated volatility.

Edited by Deron Wagner,
MTG Founder and
President

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