The Wagner Daily | September 30, 2005

Commentary:

The broad market broke out of its lethargic four-day trading range yesterday, as a broad-based rally enabled the major indices to march firmly higher and absorb overhead supply. Stocks drifted sideways to lower throughout the first two hours of yesterday’s session, but buyers arrived at mid-day and quickly changed the sentiment. The major indices rallied steadily throughout the entire afternoon and, unlike the past several days, closed at their intraday highs. Strength in the semiconductor, software, and Internet sectors helped the Nasdaq to lead the broad market and close with a 1.2% gain. Relative strength was also found in the Russell 2000 Smallcap Index, which gained 1.4%, and the S&P 400 Midcap Index, which advanced 1.2%. The S&P 500 and Dow Jones both kept pace as well, closing higher by 0.9% and 0.8% respectively.

Total volume in the NYSE increased by 3% yesterday, while volume in the Nasdaq was 4% higher than the previous day’s level. Though volume did not spike significantly, it was enough for both the S&P and Nasdaq to register a bullish “accumulation day” yesterday, the first since September 16. Market internals were also bullish across the board. Advancing volume in the NYSE exceeded declining volume by a margin of nearly 3 to 1. That ratio was just a little lower in the Nasdaq.

Nearly every major industry sector turned in a solid gain yesterday, with the Airline Index ($XAL) being the only sector we follow that closed in the red. FXI, the exchange traded fund that tracks the Xinhua China 25 Index, sprinted 3.5% higher and broke out of a five-week base. We have been stalking FXI for a potential long entry during the past week, but most of yesterday’s gain was the result of an opening gap up. After China revalued their currency in July, FXI rallied sharply for the next several weeks and peaked in mid-August. Since then, it has mostly been correcting by time, consolidating in a narrow, sideways range above its 20 and 50-day moving averages. As we often see, FXI broke out to new highs after its price came into convergence of the 20 and 50-day MAs. The move was also confirmed by volume that was nearly double its average. The daily chart of FXI below illustrates the breakout:

We now expect FXI to resume its primary uptrend and set a new high, but be aware that much of its move often comes in the form of opening gaps that are caused by the difference in time zones of the Chinese and U.S. markets. Energy-related ETFs maintained their resiliency yesterday, as UTH (Utilities HOLDR) and OIH (Oil Services HOLDR) both set new all-time highs. Gold stocks continued to show their luster, as the CBOE Gold Index ($GOX) rallied another 2.3% and closed at a fresh record high. A $3 jump in the price of spot gold also enabled our long position in GLD (Gold Trust) to close at an all-time high as well.

Yesterday’s rally in the S&P 500 caused the index to close back above both its 20 and 50-day moving averages, but right at resistance of its September downtrend line. While the recovery back above the 20 and 50-day MAs is certainly positive, caution is still required on the long side of the market due to resistance of the downtrend that has been in place since the high of September 9. The descending red line on the chart below illustrates the downtrend that remains intact:

Conversely, the Nasdaq Composite closed above its September downtrend line yesterday, but is still below both its 20 and 50-day MAs:

As you might expect, resistance of the 50-day MA at the 2,155 level is a key area to watch. Even if the Nasdaq manages to clear its 50-day MA, resistance of the downtrend line from the August 3 high (the dotted red line on the chart above) still looms overhead. Yesterday’s broad market performance was positive, but stocks are certainly not “out of the woods” yet. The major indices are now showing mixed technical signals, trapped between key support and resistance levels, so keeping a largely cash position right now is a wise move.

Today’s Watchlist:

There are no new trade setups for today, as we are near our maximum buying power based on the $50,000 model account size.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below:

Open positions (coming into today):

stop 46.08

, unrealized P/L = + $1,506

IYR short (200 shares remaining from Sept. 13 entry; covered 200 on Sept. 22) –
shorted 65.77, stop 63.90, target 59.60, unrealized points = + 2.31, unrealized P/L = + $462

MDY short (300 shares from Sept. 27 entry) –
shorted 128.09, stop 130.75, target 123.20, unrealized points = (1.88), unrealized P/L = ($564)

Closed positions (since last report):

Current equity exposure ($100,000 max. buying power):

$79,943

Notes:

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here for glossary and explanation of terms used in The Wagner Daily

Click here to view MTG’s past performance results (updated monthly).

Edited by Deron Wagner,
MTG Founder and
Head Trader