The Wagner Daily | June 29, 2005

Commentary:

The broad market broke its three-day losing streak yesterday, as each of the major indices closed firmly higher and on increased volume. After beginning the day with an opening gap higher, the indices moved slowly, but steadily higher throughout the entire day. A 2.2% rise in the AMEX Biotech Index ($BTK) enabled the Nasdaq Composite to lead the way with a closing gain of 1.2%. The S&P 500 gained a respectable 0.9% and the formerly lagging Dow Jones Industrial Average managed a 1.1% increase. Mid and small-cap stocks also continued to show their resilience, with the S&P Mid-Cap Index gaining 1.2% and the Russell 2000 Small-Cap Index zooming 2.1% higher. Each of the major indices closed near their intraday highs, a bullish sign that was the opposite of what we saw during the recent weakness of June 23 and 24.

Volume in the NYSE was 1% higher than the previous day’s level, while volume in the Nasdaq increased by 8%. The higher closing prices combined with the higher volume made yesterday an “accumulation day,” a good sign considering the weakness of the prior three days. However, volume in both exchanges still came in below average levels. Nevertheless, it’s important to note that the major indices have closed lower in three of the past four days, but only one of those three down days occurred on higher volume (factoring out the Russell rebalancing of last Friday). Market internals were very strong and confirmed the bullish price action of the broad market. Advancing volume exceeded declining volume in both exchanges by a wide margin of approximately 3.5 to 1. Advancing issues also outpaced declining issues by more than 2:1 in both the NYSE and Nasdaq.

Yesterday’s rally was positive from a technical point of view, but the big question is whether or not the broad market can follow through to the upside. The support levels in the major indices that we have been discussing over the past several days “did their thing” and caused a decent bounce, but now the S&P, Dow, and Nasdaq are sitting in the middle of their resistance bands, also known as “no man’s land.” The S&P 500, for example, bounced off support of its prior lows from late May and early June, but it closed yesterday right at resistance of its 20-day moving average. The daily chart below illustrates how the S&P is now in “no man’s land”:

Similarly, the Nasdaq Composite probed below support of its prior lows for only one day, but quickly rebounded back above that 2,052 level the following day. But yesterday’s 1.2% put the index just below resistance of its 20-day MA:

One encouraging element of yesterday’s action is that the Dow closed back above its 50-day moving average, which could have easily acted as an area of major resistance in the lagging Dow. This is a positive sign, but note that resistance of the 200-day moving average now lies only 39 points above yesterday’s close. The 20-day moving average is also overhead at the 10,502 level (93 points above yesterday’s close).

Today kicks off a two-day meeting of the Federal Open Monetary Committee (FOMC) that will conclude with an announcement on any Federal Reserve interest rate changes tomorrow at 2:15 pm. Most economists are anticipating another quarter-point rise to 3.25%, but remember that the actual news doesn’t matter. Only the broad market’s reaction matters. Also realize that the markets are typically a bit lethargic in the days preceding important Fed meetings, so we expect volume to dry up throughout the next day and a half. As such, now is probably not the best time to be entering new positions. Instead, consider managing your existing positions and stalking a “hit list” of ETFs and stocks for potential entry after the Fed announcement. Finally, remember that the markets are closed on Monday for the Independence Day holiday, which is likely to result in decreased volume on Friday.

Today’s Watchlist:

There are no new trade setups for today, as we are now long three ETF positions (BBH, SMH, and PPH).

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 = + $205

PPH long (re-entry from June 27) –
bought 73.55, stop 72.90, target 79.60, unrealized points = + 0.70, unrealized P/L = + $70

SMH long (from June 1) –
bought 34.82, stop 32.10, target 44.90, unrealized points = (0.75), unrealized P/L = ($225)

Notes:

There are no changes to the open positions or stops.

Edited by Deron Wagner,
MTG Founder and
President