The Wagner Daily


Stocks oscillated in a sideways range throughout last Friday’s pre-holiday session and finished the day near the flat line. The S&P 500 eked out a 0.1% gain, while the Nasdaq Composite, Dow Jones Industrials, and mid-cap S&P 400 indices were each unchanged. The small-cap Russell 2000 maintained its relative strength this month, as the index managed a 0.2% gain. Overall, it was a bullish week for the broad market. Both the Russell 2000 and S&P 400 indices wrapped up the week less than 1% below their all-time highs, advancing 1.2% and 0.5% respectively. The Nasdaq Composite gained 0.5%, the S&P 500 0.2%, and the Dow was unchanged. While last week’s gains were not large, more important was that the major indices held firmly to their substantial gains of the prior week.

As the bulls like to see on a day of consolidation, turnover declined in both exchanges last Friday. Total volume in the NYSE fell by 7%, while volume in the Nasdaq was 13% lower than the previous day’s level. Just like when the broad market corrected last Thursday, the bears did not seize the opportunity to aggressively sell into strength near the highs. So far, the mild correction of the past several days has shown a slight pause in buying activity, but there have been no signs of institutional selling. Since the month began, a majority of the “up” days have been on higher volume, indicating institutional accumulation, while the only “down” day of the past two weeks has been on lighter volume.

In the first Wagner Daily issue of the new year, we illustrated how the S&P 500 was entering 2006 at a pivotal support/resistance level on its long-term monthly chart. Specifically, the index had finished last year right at the 61.8% Fibonacci retracement from its March 2000 high down to the October 2002 low. As such, we anticipated that 2006 would be a volatile year because the S&P would “make it or break it” by either breaking out firmly above that key pivotal level or by reversing lower and resuming its long-term downtrend from the year 2000 high.

Although only two weeks into the new year, the S&P 500 has broken out above that 61.8% Fibonacci retracement level and, thus far, is holding firmly. The monthly chart of the S&P 500 below illustrates this:

Needless to say, 2006 will likely be a very strong year in the broad market IF the S&P holds above the 1,253 level. However, we would like to see a monthly close above that price level in order to confirm the breakout above Fibonacci resistance. With two weeks remaining in the first month of the breakout, it is too early to confirm a breakout on the monthly chart. Still, overall odds certainly favor the long side of the market in the intermediate-term.

As for the short-term, continue to watch how the S&P reacts on any retracement down to its prior highs from December. Key short-term support should be found at convergence of the prior closing high from December (1,272) and the 20-day moving average (1,271). The blue horizontal line on the chart below illustrates support that would represent a low-risk buying opportunity for new long positions in the S&P:

Be aware that quarterly corporate earnings season kicks into gear this week. Some important earnings reports this week are:

  • Tuesday – Intel, IBM, Yahoo (all after the close)
  • Wednesday – Apple Computer, eBAY, JP Morgan
  • Thursday – Genesis Microchip, Motorola, Pfizer
  • Friday – General Electric, Citigroup

    As always, both upside and downside surprises can easily impact the technical picture of the markets. Therefore, you may consider reducing share size on any new positions you enter throughout earnings season. It is also highly advisable to keep on top of earnings dates that can move the markets. There are many web sites that provide you with free earnings calendars, but we like the free Yahoo! Finance site.

    Today’s Watchlist:

    IGV – iShares GS Software Index

    Trigger = above 42.39 (over Friday’s high)
    Target = new high (will trail stop)
    Stop = 41.19 (below support of prior high and 10-day MA)
    Shares = 400

    Notes = The Software Index ($GSO) corrected by time last week after breaking out of weekly consolidation to a new 52-week high. We view last week’s correction in the Software sector as a low-risk entry point in IGV, which is just beginning to show relative strength by breaking out to a new high as well. In addition to IGV, you may also consider PSJ (PowerShares Software) and SWH (Software HOLDR), both of which have similar chart patterns.

    In addition to the Software sector, we also like the Semiconductor sector (SMH, IGW, and PSI), but are waiting for long entry due to the slew of upcoming earnings reports in that sector this week. FXI and GLD remain on our watchlist for entry on a pullback as well.

    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):

        PPH long (500 shares from Jan. 3 entry) –
        bought 70.35, stop 70.80, target: half at 73.45, half at 75.20, unrealized points = + 1.89, unrealized P/L = + $945

        DIA long (300 shares from Jan. 9 entry) –
        bought 109.89, stop 108.58, target 113.10, unrealized points = (0.35), unrealized P/L = ($105)

      Closed positions (since last report):


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



        We have tightened the stop on PPH, but no changes to the DIA position.

      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