The Wagner Daily | June 30, 2005

Commentary:

Yesterday was a choppy, range-bound day that saw little action for the major indices, but continued strength in small and mid-cap stocks. The S&P 500 spent the day in a narrow 5-point range and closed 0.1% lower, while the Nasdaq Composite similarly lost less than 0.1%. Overhead resistance of its 200-day moving average aided in the Dow Jones’ loss of 0.3%. Although the “big 3” indices each showed marginal losses, the S&P 400 Mid-Cap Index gained 0.3% and the Russell 2000 Small-Cap Index moved 0.2% higher. The relative strength in the S&P 400 during the past two days put the index back within 1% of its all-time high that was set on June 17. Nevertheless, the overall lethargic action in the major indices indicated that institutions were laying low ahead of today’s FOMC decision on interest rates.

Total market volume in the NYSE increased by 7% yesterday, while turnover in the Nasdaq was 3% higher than the previous day. The higher volume combined with broad market losses means that yesterday was technically a “distribution day,” but the small degree of the losses on the range-bound day signalled that institutions were not heavily selling. This is further confirmed by the fact that both small and mid-cap stocks closed mostly higher. Overall volume in both exchanges came in below their 50-day average levels as well. Despite lower closing prices in the S&P 500, Dow Jones, and Nasdaq, market internals showed bullish divergence into the close. Advancing volume slightly exceeded declining volume in both the NYSE and Nasdaq. Advancing issues outpaced declining issues in both exchanges as well.

In the June 20 issue of The Wagner Daily, we illustrated how Spot Gold had resumed its 3-year uptrend after a 5-month correction earlier this year. We also reminded subscribers of the associated GLD exchange traded fund that mirrors the price of Spot Gold. Since then, Spot Gold has been trading in a choppy, sideways range near its June highs. The 200-day moving average lies underneath as new support. Because GLD has only been trading for less than a year, it does not yet have a 200-day MA, but the daily chart below shows how it has come into support of its June uptrend line:

Because Spot Gold futures trade around the clock, GLD tends to show a lot of opening gaps because it only trades during regular hours of the NYSE. However, looking at a longer-term weekly chart removes a lot of the choppiness and gives a more complete picture of what is happening. The weekly chart of GLD shows the formation of a double bottom at the beginning of this month, followed by the breakout above a 6-month downtrend line:

The combination of the weekly double bottom and the break of the 6-month downtrend line is obviously bullish. Drilling down to a daily time frame, you also see that GLD has come into support of its one-month uptrend line. All of these factors indicate that now is probably an ideal time to enter a new long position in GLD. But be sure to realize that any trade in GLD is best suited for traders with a longer-term time frame of at least several months.

Today is the second day of the Federal Open Monetary Committee (FOMC) meeting that will conclude with an announcement on any Federal Reserve interest rate changes today at 2:15 pm. Most economists are anticipating another quarter-point rise to 3.25%, but remember that the actual degree of the rate change and associated wording is irrelevant. The only thing that ever matters to traders is the broad market’s reaction to the news. As experienced traders know, the markets are often volatile immediately following FOMC announcements, so take it easy this afternoon. Today is also the last day of the second quarter, so we are likely to see some volatility associated with the “window dressing” effect from mutual and hedge funds. Like we mentioned yesterday, today is probably not the best time to be entering new positions. Rather, focus on 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 tomorrow.

Today’s Watchlist:

GLD – StreetTRACKS Gold Trust
Long

Trigger = above 43.80 (above yesterday’s high)
Target = 45.90 (just below December 2004 high)
Stop = 42.90 (below low of June 16 gap)

Notes = The position size of GLD is not yet listed on the Wagner Daily position model because we have not yet traded this new ETF. However, the position size will be 400 shares (a multiplier of 2x based on the position model). See commentary above for explanation of the trade setup.

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 = + $5

PPH long (re-entry from June 27) –
bought 73.55, stop 72.90, target 79.60, unrealized points = + 0.37, unrealized P/L = + $37

SMH long (from June 1) –
bought 34.82, stop 32.10, target 44.90, unrealized points = (0.97), unrealized P/L = ($291)

Notes:

There are no changes to the open positions or stops.

Edited by Deron Wagner,
MTG Founder and
President