The Wagner Daily | November 14, 2005

Commentary:

The major indices closed modestly higher last Friday, wrapping up a week of solid gains for the broad market. After trading in a narrow, sideways range throughout the entire session, the S&P 500, Nasdaq Composite, S&P Midcap 400, and Russell 2000 indices each closed 0.3% higher. The Dow Jones Industrials gained 0.4%. Each of the major indices finished near their intraday highs and at their best levels for the week. The Nasdaq gained 1.6% for the week, while the S&P 500 advanced 1.2%. We sold half of our long position in BBH into strength and locked in a gain of 8 points. Because it continues to consolidate near its highs, we plan to continue holding the remaining shares with a trailing stop below the hourly uptrend line.

Due in part to the Veteran’s Day holiday, turnover declined sharply on both exchanges last Friday. Total volume in both the NYSE and Nasdaq was 26% lighter than the previous day’s levels and below their average levels as well. Although the broad market advanced on lighter volume, it was positive that the bears did not take advantage of the opportunity to sell into strength. Lack of demand from a low volume rally always presents an ideal chance for sellers to step in, but there not many to be found in Friday’s session. Market internals were positive, as advancing volume exceeded declining volume by a ratio of approximately 2 to 1 in both exchanges.

In the November 10 issue of The Wagner Daily, we pointed out the bullish setup that was taking place in the Gold and Silver Index ($XAU). The sector retraced a small percentage later that day, but surged 2.9% higher the following day. Like November 9, the $XAU index was the leading industry sector in last Friday’s session. Last week’s 5.2% gain in the $XAU caused the index to clearly break out above resistance of its daily downtrend line from the September 30 high. This also resulted in $XAU setting its first “higher low” and subsequent “higher high” since the correction began on September 30:

Because the primary uptrend line on the weekly chart remains perfectly intact, we have strong reason to believe the $XAU index will soon break out to a fresh multi-year high. Spot gold has also begun moving in sync with the gold and silver mining stocks, so we sent an intraday e-mail alert to subscribers last Friday, informing them of our new entry in GLD (StreetTracks Gold Trust). Obviously, we expect GLD to set a new high in the coming days as well.

Taking an updated look at some of the other industry sectors we have recently discussed, you will see that the Semiconductor Index ($SOX) remains in the middle of last month’s range. Because it is in “no-man’s land,” we feel it is risky to take aggressive position in the $SOX right now unless you are only looking to trade momentum with holding periods of no more than a day or two. Conversely, the Biotech Index ($BTK) closed last week at a new 4-year high. The Biotech HOLDR (BBH) set its highest weekly closing price since the week ending March 10, 2000! The prior week ending March 3, 2000 was its all-time closing high of $242.75. As the weekly charts below illustrate, there is little resistance of overhead supply to get in the way of both the $BTK Index and BBH:

Although we have not discussed it much, the Financial sectors also did quite well over the past week. XLF (Financial SPDR) closed last week at a record high of $31.61, so its prior highs should now act as support. The monthly chart of XLF below shows the breakout:

As for the broad market ETFs, QQQQ is the only one that closed last week at a new 52-week high. SPY is close to doing the same, but it still has overhead supply to contend with. Therefore, we recommend focusing any broad market long entries in the Nasdaq, although a few S&P type sectors such as Financials are outperforming.

Today’s Watchlist:

There are no new setups for today, but we are now long GLD as well as BBH. GLD was entered per intraday e-mail alert last Friday.

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 201.49

unrealized P/L = + $622

GLD long (700 shares from Nov. 11 entry) –
bought 46.79, stop 45.70, target new high (will trail stop), unrealized points = + 0.01, unrealized P/L = + $7

Closed positions (since last report):

net P/L = + $598

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

$48,180

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