The Wagner Daily | November 23, 2005

Commentary:

Like the previous day, stocks spent most of the day consolidating in a narrow, sideways range, but a rally during the final two hours of the session lifted the major indices into the close. This time, the rally was spurred by a positive reaction to the Fed minutes that were released at 2:00 pm EST. In those comments, the Feds hinted that the current cycle of interest rate tightening may soon be coming to an end. This resulted in an upward surge of many interest-rate sensitive sectors such as Banking and Home Construction. The S&P 500, Nasdaq Composite, Dow Jones Industrials, and Russell 2000 indices each gained 0.5% yesterday. The S&P Midcap 400 Index rallied 0.6%. As we have become accustomed to seeing in the current bullish environment, the broad market again closed near its intraday highs.

A surge in volume after the Fed minutes yesterday afternoon caused turnover to rise above the previous day’s levels in both exchanges. Total volume in both the NYSE and Nasdaq came in 11% higher, enabling both the S&P and Nasdaq to register another bullish “accumulation day.” Advancing volume in the NYSE exceeded declining volume by a ratio of 2 to 1, while the Nasdaq internals were positive by a 3 to 2 margin. Though one might have expected a drop in volume as we approach the Thanksgiving holiday, it was certainly positive that institutional accumulation was still on the scene.

The Semiconductor Index ($SOX), which has lagged behind the broad rally throughout most of this month, outperformed the major indices with a 0.9% gain yesterday. The $SOX also closed just below resistance of its prior 52-week high from August 2. Since its big gap up on November 18, the $SOX has been showing relative strength to the Nasdaq. This, of course, confirms the Nasdaq rally because a broad-market rally rarely lasts for long if the Semis are not participating. Although the $SOX index itself is closer to its 52-week high than SMH, the Semiconductor HOLDR closed yesterday above its multi-month downtrend line that had been in place since the August 2 high:

Due to its new relative strength and break of its downtrend line, we are now stalking SMH for a potential long entry. However, we will first wait for at least a small retracement because the broad market is getting quite extended in the short-term. Although we don’t know exactly when stocks will correct, a quick look at the daily charts of the S&P and Nasdaq shows that both indices are becoming very far away from their 20-day moving averages. When this occurs, the 20-day MA tends to act like a leash and pulls the indices closer to the moving average. This applies both in “overbought” and “oversold” markets, using the terms loosely.

In yesterday’s Wagner Daily, we discussed the short-term support levels in both the S&P and Nasdaq. Given that the major indices closed higher yesterday, those same support levels remain in effect going into today. Overhead resistance, of course, is non-existent at current levels. Therefore, you may wish to review yesterday’s newsletter and make note of those support levels. Going into today, we also expect trading to be relatively quiet ahead of the Thanksgiving holiday. It is probably best to wait until after the holiday has passed before entering any new positions you have in mind. Remember that light volume days are often choppy and erratic.

Note that the U.S. equities markets will be closed tomorrow for the Thanksgiving holiday. As such, The Wagner Daily will not be published tomorrow, but regular publication will resume on Friday. Happy Thanksgiving to all!

Today’s Watchlist:

There are no new setups for today.

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):

unrealized P/L = + $1,170

TLT long (500 shares from Nov. 16 entry) –
bought 89.87, stop 89.55, target 92.15, unrealized points = + 0.66, unrealized P/L = + $330

Closed positions (since last report):

net P/L = + $1,040

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

$69,925

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