The Wagner Daily | December 22, 2004

Commentary:

The broad market closed firmly higher yesterday, enabling the Nasdaq Composite to snap its three-day losing streak and the Dow Jones Industrial Average to close at a new multi-year high. After opening slightly higher, the major indices promptly settled into smooth intraday uptrends that remained intact throughout the session. Both the S&P 500 and Dow Jones Industrials gained 0.9% yesterday, while the Nasdaq Composite recovered 1.1% of its recent losses. Opposite of the previous day, each of the major indices also closed near their intraday highs.

Total market volume in the NYSE increased by 4%, while volume in the Nasdaq came in less than 1% lower. The increase in NYSE volume made yesterday an institutional “accumulation day,” which was a change to the several “distribution days” we have seen during the past week. The Nasdaq, however, failed to confirm the bullish price to volume action. Nevertheless, breadth was very positive in both exchanges. Up volume outpaced down volume by a wide margin of 3.8 to 1. The ratio was also a positive 2.9 to 1 in the Nasdaq.

The most significant technical event in the broad market yesterday was that the Dow Jones Industrial Average finally closed above its prior highs from the past February. The Dow’s closing price of 10,759 marked a fresh three and a half year high in the index. This means that the Nasdaq is now the only one of the three major indices that continues to lag and trade below its prior high from the beginning of this year. The relative weakness and divergence in the Nasdaq is the primary factor that prevents us from getting overly aggressive on the long side right now.

Yesterday’s rally in the S&P 500 came right on cue, as support of its primary uptrend line did what it was “supposed” to do. Notice how the index bounced perfectly off support of its uptrend line from the October low:

Since the S&P bounced off support of its uptrend line, the short-term area of support is now clearly defined as the low of the past two days, which correlates to the uptrend line as well. As long as the S&P holds above the 1,189 to 1,193 area, the uptrend remains intact. Short-term resistance (although minimal) is the high of last week, which is only three points above yesterday’s closing price.

With only two full trading days remaining before the Christmas Holiday, the markets are likely to begin seeing a big drop in volume today. Remember that lighter volume often results in choppy and indecisive market action, so be careful not to overtrade. Note that the stock markets are closed the full day this Friday, Christmas Eve. Don’t be too anxious to enter new positions until after the holidays, as cash is usually your best bet when the market is showing mixed signals. As always, remember to trade what you see, not what you think!

Today’s watch list:

There are no new setups for today, as we are not interested in initiating any new positions ahead of the Christmas Holiday. We remain long BBH, short 1/2 position QQQQ, and short HHH.

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 = + $230

QQQQ short (HALF position, from Dec. 7) –
shorted 40.09, stop 39.95, target 37.80, unrealized points = + 0.41, unrealized P/L = + $82

HHH short (from Dec. 20) –
shorted 69.65, new stop 70.75, target 65.75, unrealized points = + 0.65, unrealized P/L = + $65

Notes:

Note the new stops on BBH and HHH (which we accidentally failed to include in yesterday’s position summary).

Edited by Deron Wagner,
MTG Founder and
President