The Wagner Daily | December 15, 2005

Commentary:

Stocks followed up the Fed’s thirteen consecutive rate hikes with a choppy day of broad market divergence yesterday. The S&P 500 Index gained 0.4% and set a fresh four-year closing high. The Dow Jones Industrials similarly advanced 0.6%, but the Nasdaq Composite showed relative weakness and lost 0.1%. The 0.4% gain in the mid-cap S&P 400 gained 0.4% enabled the index to close at a new record high, while the small-cap Russell 2000 managed a 0.2% gain and remained in its range. Yesterday’s laggard performance in the Nasdaq caused the index to finish near the middle of its intraday range, but the S&P 500 closed in the upper third of its range.

As we often see on choppy, divergent days, turnover was lower across the board. Total volume in the NYSE declined by 11%, while volume in the Nasdaq was 7% lower than the previous day’s level. Like the previous day, market internals were mixed as well. Advancing volume exceeded declining volume by a margin of 2 to 1 in the NYSE, but the ratio in the Nasdaq was negative by nearly the same margin. The decrease in overall volume and the mixed market internals indicates institutions were hesitant to take an aggressive stance on either side of the market after Fed day. Indecision was the primary theme of the day.

Looking at the broad market, the most notable thing about yesterday’s performance is that the S&P 500 finished at a new 4-year high yesterday:

Because the index closed at a new multi-year high, there is once again a complete lack of overhead supply to contend with. Therefore, it would not take a lot of buying pressure to push the S&P higher from here. However, the Nasdaq still remains in its three-week sideways range. It’s inability to follow-through and set a new high along with the S&P could cause choppy conditions overall in the broad market. In the Nasdaq, we are looking for a closing price above 2,273, which is its prior closing high from December 2:

Although its consolidation near the highs is bullish, relative weakness in the Biotech sector may be a drag on the Nasdaq. Also keep a close eye on the Semiconductor Index, as it remains in consolidation mode as well. Conversely, Pharmaceuticals, Financials, Oil, and Construction are all waking up again and are helping the S&P to show strength. Our long position in PPH (Pharmaceutical HOLDR) triggered yesterday and we are showing a small unrealized profit so far.

Unfortunately, the last two weeks of December is historically a difficult time for traders to make money because volume and volatility usually dry up. From now until the end of the year, we will see more and more traders beginning their holiday vacations each day. Along with that, we are likely to see a gradual drop in turnover until the New Year as well. In past years, choppiness in the latter half of December caused us to give back some hard-earned profits. However, we are solving that problem this year by simply remaining on the sidelines, patiently positioned mostly in cash. The market will always be here the next day, so wait for ideal conditions to present themselves before deploying your capital.

Today’s Watchlist:

There are no new trades for today, although PPH long triggered yesterday.

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 = + $128

Closed positions (since last report):

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

$27,416

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