The Wagner Daily | December 13, 2005

Commentary:

After beginning the day with an opening gap higher, stocks drifted lower throughout the morning session, but an equally soft afternoon rally enabled the broad market to finish near unchanged levels. The S&P 500 gained 0.1% and the Nasdaq Composite advanced 0.2%, but the Dow Jones Industrials slipped 0.1% lower. Both the small-cap Russell 2000 and mid-cap S&P 400 indices eked out gains of less than 0.1%. It was an uneventful session overall, as most traders preferred to stay on the sidelines ahead of today’s FOMC meeting and decision on interest rates. Virtually everyone on Wall Street is already expecting an increase to 4.25% in the Fed Funds rate, but the big question is whether or not the Federal Reserve Board will hint at an end to the recent string of interest rate increases. The decision on interest rates and corresponding commentary will be delivered this afternoon at 2:15 pm EST.

Turnover in both exchanges was nearly on par with the previous day’s levels. Total volume in the NYSE increased by 1%, while volume in the Nasdaq was 0.3% lighter than the previous day. Volume in both exchanges came in just below 50-day average levels. The nearly unchanged broad market closing prices combined with flat volume changes made for a quiet session overall. Market internals were slightly positive, as advancing volume marginally exceeded declining volume in both the NYSE and Nasdaq. Expect turnover to remain light ahead of the FOMC meeting today.

Most industries turned in a mixed performance yesterday, with no specific sectors showing major relative strength or weakness to the broad market. The Semiconductor Index, which we analyzed yesterday, gained 0.6% and continues to show bullish consolidation on its weekly chart. The Biotech Index, which we also discussed yesterday, gapped open above that 682 resistance level, but immediately reversed and “filled the gap.” The index eventually closed 0.3% lower and remains in its three-week sideways range.

As many subscribers know, we have been bullish on both the Gold Trust ETF (GLD) and Gold Mining Index ($GOX) throughout the past month. We netted a decent profit on GLD earlier this month and have been simply trailing stops higher to maximize gains on a handful of individual mining stocks. However, because each of our gold mining stocks hit their trailing stops yesterday, we wanted to give a heads-up to let subscribers know it may be time to take your profits on any gold or silver miners you have been holding.

A $10 per ounce overnight spike in the price of Spot Gold caused yesterday’s regular trading session to begin with a 2.6% opening gap up in the $GOX index and a 1.3% opening gap up in GLD. However, because the large gap in GLD occurred after it had already been rallying parabolically for several weeks, we were rather suspicious about its ability to maintain its opening gap. When you consider that GLD had closed higher for seven consecutive sessions, that made us even more doubtful that the gap would remain intact. Sure enough, traders sold into the strength of the gap and, by day’s end, GLD had gained only 0.3% and finished near its intraday low. It also showed this type of price action on its highest volume day of the entire multi-week uptrend, which is bearish. The $GOX index similarly changed from a 2.6% opening gain to a 0.1% closing loss. When this type of intraday price action occurs after a stock or ETF has already been trending sharply for an extended period of time, it is known as an “exhaustion gap” and often marks a short-term top. For that reason, we took profits on all our open positions in the gold and silver mining stocks yesterday. Unless you intend to hold through at least a short-term correction, you may want to do the same. Looking at the chart of GLD below, notice yesterday’s bearish reversal candle, as well as the huge volume spike to nearly four times its average daily volume. That large volume spike, combined with a reversal candle after a parabolic move, signal a likely short-term correction:

Because the Feds are meeting on interest rates today, we intend to remain on the sidelines and passively watch the afternoon reaction. Trading in the morning is likely to be lethargic, while trading will become erratic and volatile after the 2:15 pm Fed announcement. After the market has had a chance to digest the Fed’s comments, we will consider entering new positions in the latter half of this week. Remember to trade what you see, not what you think!

Today’s Watchlist:

We now have a few ETF setups in mind for potential entry, but we need to first see the market’s reaction to the Fed announcement today. For now, we will focus on managing the small short position in DIA.

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 108.65

unrealized P/L = + $198

Closed positions (since last report):

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

$21,552

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