The Wagner Daily


Stocks chopped around in a lazy, sideways range throughout last Friday’s session before finishing the day mostly higher. The Nasdaq Composite advanced 0.3% and the S&P 500 eked out a 0.1% gain, but the Dow Jones Industrials lost 0.1%. The mid-cap S&P 400 rallied 0.4% and the small-cap Russell 2000 gained 0.6%, enabling the latter index to squeak by with a new all-time closing high.

Curiously, turnover again declined in both exchanges. Total volume in the NYSE was 5% lighter, while volume in the Nasdaq came in 12% lower than the previous day’s level. The overall drop in turnover means that volume levels in both exchanges came in below average every day last week. Friday was the Nasdaq’s lightest volume day of the year, while it was the second lightest day of the year in the NYSE. When a market is printing its lowest volume levels in months, it cannot be trusted because it could easily make a sharp move in either direction when instituional activity eventually returns. Without even looking at any technical chart patterns, the unusually low volume levels alone give astute traders sufficient reason for caution on both sides of the market.

After an orderly correction down to its 50-day moving average, the iShares Gold Trust (GLD) has begun to resume its six-month uptrend. We recently discussed GLD when it touched its 50-day MA two weeks ago, but first wanted to see confirmation of price stabilization and the formation of a base of support before re-entering gold-related shares. After bouncing off its 50-MA on February 16, GLD subsequently traded in a tight, sideways range for the next four days before popping over its 20-MA on Friday. We like its recent action and feel GLD will probably set another new high in the near future. Looking at the chart below, notice how GLD perfectly bounced off convergence of its uptrend line and 50-day MA two weeks ago and has once again begun to resume its uptrend:

Although we are not presently in GLD, we did buy individual stock Newmont Mining (NEM) last Friday (as per the setup in the February 23 issue of The MTG Stalk Sheet).

As for the broad market, last Friday’s action did nothing to change the overall technical picture. The pivotal 1,295 resistance level on the S&P 500 remains our primar focal point going into today. As mentioned in the February 24 issue of The Wagner Daily, that level is a key make it or break it” point for the entire broad market. Just as important is that the Nasdaq Composite closed right at resistance of its daily downtrend line. A sharp move in either index is likely to pull the other along with it because of the closely-followed resistance levels in both indices.

It goes without saying that now is definitely not the time to be making aggressive bets on either side of the market. However, the major indices are likely to resolve themselves in one direction or the other within the next one to three days. When they do, being already positioned mostly in cash will enable you to quickly and easily initiate new positions in the same direction as the trend. In the meantime, be sure to have a list of stocks and ETFs that are showing relative strength and relative weakness. Above all, remember to trade what you see, not what you think!

Today’s Watchlist:

IYH – iShares Healthcare Sector

Trigger = above 65.19 (over prior high)
Target = new high (will trail stop)
Stop = 64.10 (below low of recent consolidation)
Shares = 500

Notes = For years a laggard sector, the Pharmaceutical Index ($DRG) has begun to show signs of relative strength and positive institutional money flow. Since recovering off its lows in the fourth quarter of 2005, the $DRG index has been consolidating above its 200-MA for the past several months and recently bounced off support of its 50-MA as well. We feel a new uptrend is developing in the sector and expect a breakout of consolidation above the 329 level in the $DRG.

There are three primary ETFs that are closely tied to the performance of the $DRG. They are: PPH (Pharmaceutical HOLDR), PJP (PowerShares Pharmaceuticals), and IYH (iShares Healthcare). Of the three, we chose IYH because it has the nicest looking consolidation near its high. Although the average daily volume of IYH is only 141,000 shares, remember that all ETFs are synthetic instruments that move in direct proportion to the values of their underlying stocks. Therefore, liquidity is never an issue with an ETF, even if the average daily volume is light.

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):

      FXI long (200 shares remaining from Feb. 21 entry) –
      bought 73.15, stop 73.25, target new high (will trail stop), unrealized points = + 0.70, unrealized P/L = + $140

      MDY short (300 shares from Feb. 21 entry) –
      shorted 140.87, stop 142.82 (see note below), target 133.70, unrealized points = (2.20), unrealized P/L = ($660)

    Closed positions (since last report):


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



      MDY did not hit our stop in Friday’s regular session, but did so in the after-hours market. As such, our stop was not yet hit. Going into today, we will be using the MTG Opening Gap Rules to manage the MDY short position because it closed above our stop price. As per the Gap Rules, stop will be 10 cents over the high of first 20 minutes. No changes to the FXI 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