The Wagner Daily


A worse than expected earnings report from Internet leader Google pressured stocks on yesterday’s open, but the broad market recovered to finish the day slightly higher. The Nasdaq Composite, down as much as 0.6% intraday, reversed its opening weakness to close with a 0.2% gain. The S&P 500 Index did the same. Strength in Boeing, which reported earnings before the open, helped the Dow Jones Industrial Average to show relative strength for a change. The index popped 0.8% and finished at its highest level since January 13. All three of the major indices finished near their intraday highs, indicating institutional support. The mid-cap S&P 400 eked out a 0.1% gain and the small-cap Russell 2000 advanced 0.3%. Both indices again closed at new all-time highs, the S&P 400 doing so for the fourth straight day!

Total volume in the NYSE decreased by 2%, but volume in the Nasdaq was 1% higher than the previous day’s level. Market internals were negative in the morning, but improved throughout the session. By day’s end, advancing volume had exceeded declining volume by approximately 3 to 2 in both the NYSE and Nasdaq. While the ratio was not extremely positive, the market’s resiliency and ability to reverse its early losses was bullish.

One sector ETF worth keeping an eye on is the Biotech HOLDR (BBH). Since March of 2005, BBH has been in a steady uptrend on its weekly chart, which we have profited from several times along the way. In November of 2005, BBH formed a peak and began to correct to the downside. Since then, BBH has been in a steady downtrend on its daily chart, but the longer-term weekly chart still looks pretty good. Strength in the Biotech Index ($BTK) enabled BBH to break out above its 7-day range and close at its 20-day moving average. The rally also put BBH within striking distance of breaking its daily downtrend line, which now converges with the 50-day moving average. When a trendline converges with a major moving average, a break above or below that level usually generates a lot of momentum. The daily chart below illustrates the downtrend line and moving average convergence:

If BBH breaks out above the downtrend line illustrated above, it will represent a low-risk entry point on the long side. Our first target would then become the prior high from November, around the $212 area. Because prior resistance becomes the new support after resistance is broken, a tight stop could be kept just below the downtrend line. Of course, BBH has not broken out yet, so buying at the current level is a bit risky. Nevertheless, you may want to set an alert on your trading software so that you are aware when/if BBH breaks out above its downtrend line and 50-day MA. PBE (PowerShares Biotech) and IBB (iShares Biotech) are two similar ETFs to consider. While both PBE and IBB have less overhead supply than BBH, we feel BBH presents a better overall risk/reward ratio if it breaks out above its downtrend line.

As for the broad market, the same resistance levels we illustrated in yesterday’s newsletter are applicable going into today. For the S&P, the key resistance level is 1,285. Interestingly, the Nasdaq closed right at resistance of its prior high, so today’s action is likely to cause the index to either “make it or break it” in the short-term.

Today’s Watchlist:

XLU – S&P Select Utilities SPDR

Trigger = below 32.02 (below daily uptrend line and Jan. 26 low)
Target = 30.15 (just above the Oct. 2005 closing low)
Stop = 32.92 (above hourly downtrend line and 10-day MA)
Shares = 700

Notes = Due to the MTG Gap Rules, this setup did not trigger yesterday, but we still like it and are stalking for potential entry today. We are looking to short a break of the daily uptrend line on XLU. A “lower high” on the weekly chart helps to confirm the short setup.

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):


    Closed positions (since last report):


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



      Per intraday e-mail alert, we did not yet short XLU due to opening gap rules. We remain flat, but are targeting it for potential entry today.

    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