The Wagner Daily | November 11, 2005

Commentary:

The broad market finally broke out of its five-day sideways consolidation yesterday, as the Nasdaq 100 Index rallied to close at a fresh 52-week high. Although stocks traded lower throughout the morning session, buyers stepped in at mid-day and sparked a rally that enabled the major indices to close above their recent trading ranges. The S&P 500, Dow Jones Industrials, and Nasdaq Composite locked in gains of 0.8%, 0.9%, and 1.0% respectively. The small cap Russell 2000 Index advanced by 0.8%, but the S&P 400 Midcap Index showed relative weakness and gained only 0.4%. BBH (Biotech HOLDR) rallied 1.6% yesterday and our long position is now showing us a marked to market gain of exactly 8 points. We did, however, cover MDY (S&P 400 Midcap) with a loss of just over 1 point due to a tightened trailing stop.

Confirming yesterday’s rally was the fact that turnover increased sharply across the board. Total volume in the Nasdaq surged 19% higher, while volume in the NYSE was 7% higher than the previous day’s level. This gave both the S&P 500 and Nasdaq another bullish “accumulation day” that confirmed the presence of institutional buying interest. Volume rose above 50-day average levels in both exchanges as well. Market internals began the day firmly negative, but finished the session with advancing volume exceeding declining volume by a comfortable margin.

Since the major indices broke out of their five-day trading ranges yesterday, let’s take an updated look at the short term support and resistance levels of the major indices. Most notably, the Nasdaq 100 Index closed at a new 52-week high yesterday. The other broad-based indices remain well below their recent highs, but relative strength in the Nasdaq 100 enabled the index to break out. As the chart below illustrates, QQQQ (Nasdaq 100 Index) will finish the week at a 52-week closing high if it holds above the 40.13 level today. Therefore, traders may consider buying QQQQ and trailing a stop based on the hourly or daily uptrend line. The lack of overhead resistance means it will probably go higher in the coming weeks:

The S&P 500 Index closed yesterday above resistance of its prior high from September, meaning the index has now erased all of last month’s 1.8% loss. It is bullish that the index is now poised to set a “higher high” on its weekly chart, but a mess of overhead supply remains all the way up to its prior highs from August and September. However, the prior high from September should now act as the new support level. The chart of SPY (S&P 500 Index) illustrates this:

The most ideal scenario would now be for the S&P to trade in a sideways manner to build a base of support from which to attempt breaking out above its prior highs. Realize that it will be difficult for the S&P to bust out to new highs if it rallies straight up without a decent weekly consolidation first.

The daily chart of the Dow looks very similar to the S&P in that it closed above its prior high from September, but has resistance all the way up to its prior highs from August and September. As you can see on the chart of DIA, the Dow Jones Industrials has a clear resistance level at 10,700 (multiply the price of DIA times ten for the approximate value of the Dow Jones):

Overall, the broad market is beginning to look better. The Nasdaq is showing a lot of strength, fueled by Biotechs, Internets, and Semiconductors. However, the Dow and S&P still have overhead supply to contend with. If you’re long, odds favor the tech-related sectors of the Nasdaq more than the “old economy” sectors that are beginning to show negative money flow. Trade in the direction of institutional sector rotation and you will increase your odds of profitability even if the broad market deliberates.

Today’s Watchlist:

There are no new setups for today, but we will send an intraday e-mail alert if/when we enter anything new.

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 195.70

unrealized P/L = + $1,200

Closed positions (since last report):

net P/L = ($417)

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

$30,795

Notes:

Click
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