The Wagner Daily | January 12, 2006

Commentary:

The major indices spent most of yesterday’s session in a narrow, sideways range, but the bulls arrived during the final ninety minutes of trading and once again enabled stocks to close in positive territory. Both the S&P 500 and Dow Jones Industrial Average gained 0.3%, while the Nasdaq Composite advanced 0.5%. It was the Nasdaq’s seventh straight day of gains, a perfect record so far in the new year. Both the small-cap Russell 2000 and mid-cap S&P 400 indices held firm at their record highs, closing unchanged and 0.1% higher respectively.

Turnover rose across the board yesterday, adding another bullish “accumulation day” to the count for both the S&P and Nasdaq. Total volume in the Nasdaq firmly increased by 19%, while volume in the NYSE was 1% higher than the previous day’s level. Since the new year began, more than half of the “up” days have been on higher volume, while there have been no “down” days to speak of. Yesterday’s action tells us that institutional buying interest remains alive and well, although we would not be surprised to see some profit taking in the short-term.

One sector ETF we are stalking on the long side is HHH (Internet HOLDR). Unlike a handful of sector ETFs in which we are waiting for a price correction, we are waiting for a breakout above horizontal price resistance to buy HHH. Beginning with the daily chart, you will notice that HHH bounced perfectly off support of its 50-day moving average on January 3:

Although the bounce off the 50-day MA is bullish, the daily chart looks a bit choppy and indecisive over the past few weeks. Therefore, zooming out to the longer-term weekly chart removes much of the “noise” from the daily chart and presents a clear “big picture” of what is really happening in the sector:

As you can see, HHH tested resistance of the November 2005 high earlier this week, but was unable to break out. However, it has been consolidating nicely over the past eight weeks, near its 52-week high, and will probably make another attempt at breaking out soon. We like HHH for long entry over this week’s high of 70.85. The November high was 70.64, so a rally over the 71 level should generate some upside momentum. But don’t forget that buying any breakout candidate before the actual breakout can be quite risky. Patience is required for a setup like this.

Looking at the major broad-market indices, the support levels we analyzed in yesterday’s Wagner Daily remain valid going into today. On the upside, there remains no overhead resistance to be concerned with, but the broad market is becoming a bit extended in the short-term. We’re not in the business of calling tops, as it is much more profitable to follow the trends, but it is equally important to maintain discipline and be patient if stalking any stocks or ETFs for long entry. Now is certainly NOT the time to begin chasing the rally if you missed it. Keep that shopping list handy, but note that the start of quarterly earnings season next week may complicate things a bit.

Today’s Watchlist:

There are no new trade setups for today, as we need to see at least a minor broad market correction before entering new ETFs. We are stalking GLD, FXI, SMH, and SWH for potential entry on a pullback. As always, we will send an intraday e-mail alert if/when we enter any new positions.

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 = + $965

DIA long (300 shares from Jan. 9 entry) –
bought 109.89, stop 108.58, target 113.10, unrealized points = + 0.54, unrealized P/L = + $162

Closed positions (since last report):

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

$69,269

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