The Wagner Daily | December 23, 2005

Commentary:

Stocks followed-through with their second consecutive day of gains, as each of the major indices also closed at their intraday highs for the first time in nearly two weeks. The S&P 500 gained 0.4%, the Dow Jones Industrials 0.5%, and the Nasdaq Composite 0.7%. The S&P and Dow finished just below their highs of the previous day, while the Nasdaq surpassed its prior day’s high. Both the small-cap Russell 2000 and mid-cap S&P 400 indices kept pace with the broad market and advanced 0.6%. Yesterday’s steady uptrend was a welcome change from the market’s recent indecision that has been filled with intraday reversals.

Not surprisingly, turnover dropped off in both exchanges. Total volume in the NYSE came in 13% lighter, while volume in the Nasdaq was 7% lower than the previous day’s level. Yesterday’s broad market price action was positive, but lower overall volume levels failed to confirm that institutions were behind the move. Institutional support is always important because institutions account for approximately two-thirds of all daily trading activity. We micro-analyze volume levels every day because changes in turnover levels are the footprints of institutional activity. When a rally is driven purely by retail buying, it does not take a lot of institutional selling to undo the gains. Being that today is the last session before Christmas Day, we expect volume levels to drop off even more.

The Gold Mining Index ($GOX), which we analyzed yesterday, surged 2.6% yesterday and closed at a fresh record high. However, note that GLD, the ETF that tracks the actual price of spot gold, has begun to show relative weakness to the $GOX index. While many individual mining stocks set new highs yesterday, GLD still remains 5% below its record closing high that was set on December 12. If you compare the daily charts of the $GOX and GLD, you will see that GLD showed relative strength to and set new highs ahead of the $GOX in the first half of the month. It appears the individual mining stocks are now playing “catch up” to the prior move in spot gold. The miners usually, but not always, mirror the price of spot gold (and GLD). As mentioned yesterday, we are skeptical of trusting any breakout to a new high during this low-volume holiday period, so it will be interesting to see whether or not the gold stocks continue higher without consolidating a bit longer.

The Biotech Index ($BTK), which bounced off support of its 50-day moving average three days ago, is once again showing relative strength to the broad market. Yesterday’s 1.8% gain pushed the index to within 1% of its 5-year closing high:

As you can see on the chart above, the $BTK index had been correcting since its November 22 high, but it rallied above its daily downtrend line yesterday. The index now appears ready to resume its upward march after the holidays have passed. BBH (Biotech HOLDR) continues to lag behind the $BTK index itself, but it is beginning to look better. Along with Gold, the Biotechs should be on your watchlist for the beginning of January.

As always, we will be providing the usual technical analysis and market commentary during the holiday period, but entering new positions at this time is not advisable. Overtrading is easy to do in a light volume environment, and it only leads to churning your trading account. If you are currently flat, relax and take some time off. The market will certainly be here when you are ready to return, and remaining in cash during this time period is likely to save you money. If, however, you are already in positions that you like, simply set your good-til-canceled (GTC) stop orders and cruise into the end of the year as well.

Note that the U.S. equities markets will be closed on Monday, December 26. As such, The Wagner Daily will not be published that day, but regular publication will resume on December 27. Happy Holidays to you and your family!

Today’s Watchlist:

Per the commentary above, we do not plan to enter any new positions between now and Christmas Day. We will, however, send an e-mail alert if something really grabs our attention.

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 = ($120)

Closed positions (since last report):

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

$20,391

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