The Wagner Daily | February 28, 2006

Commentary:

The broad market closed higher across the board yesterday, but selling pressure in the final thirty minutes once again prevented the S&P 500 from breaking out above its 1,295 resistance level. Strength in biotech and software stocks helped the Nasdaq to secure a 0.9% gain, while the small-cap Russell 2000 similarly advanced 0.6%. Weakness in energy and mining shares caused both the Dow Jones Industrials and S&P 500 to lag behind, registering gains of 0.3% and 0.4% respectively. The mid-cap S&P 400 also showed relative weakness and closed only 0.2% higher.

Total volume in the Nasdaq increased by 12% yesterday, enabling the index to achieve a bullish “accumulation day,” but volume in the NYSE was 3% lighter than the previous day’s level. Despite the Nasdaq’s higher turnover, volume was still below its 50-day average. In fact, it has been six days since turnover in either exchange exceeded average levels. Institutional participation remains curiously absent and, as such, we need to be prepared for a swift move in the markets when institutional traders return to the scenes.

One industry that turned in an impressive performance yesterday was Retail ($RLX). The 1.9% gain in the sector caused the $RLX to close at a new 6-month high and just below the high of its 4-month consolidation. A breakout above the consolidation in the $RLX could result in long setups in a few of the ETFs that track retail stocks. The daily chart of $RLX below illustrates the potential breakout above consolidation. Notice also how the 200-day MA (the orange line) acted as support earlier this month:

RTH (Retail HOLDR) is the most popular ETF that tracks the sector, but IYC (iShares Consumer Cyclical) is another option to trade. In the case of RTH, we like it long over yesterday’s high of 99.03, as that would result in a breakout above the prior high.

In the broad market, two notable events occurred yesterday. On the bullish side, the Nasdaq Composite finally closed above resistance of its primary downtrend line that has been in place since the high of January 11. However, the bearish factor is that the S&P 500 reversed at the end of the day after probing above resistance of its prior high. The first chart below illustrates the Nasdaq’s breakout above the downtrend line, while the second chart illustrates the S&P’s recent “line in the sand:”

As you can see by the Nasdaq’s breakout, the technical picture is improving in the broad market, but the 1,295 level on the S&P keeps acting like a brick wall. If the S&P can get in gear and close above that level, it will certainly put the bulls at ease because the Nasdaq is looking pretty decent now. But the S&P could be in trouble if it does not break out soon. Each failed breakout attempt weakens the resolve of the bulls, who will eventually “throw in the towel” if the index does not break out. Such action would undoubtedly attract short sellers who could quickly reverse the recent bullish picture in the market. This is especially true considering that stocks have been inching higher on only very modest volume. We are prepared to short a possible failure in SPY (S&P 500) and have listed the trigger, stop, and target price of this trade setup for subscribers below.

Today’s Watchlist:

SPY – S&P 500 Index
Short

Trigger = below 129.35 (below hourly uptrend line)
Target = 125.70 (just above prior low)
Stop = 130.35 (just above yesterday’s high)
Shares = 400

Notes = See commentary above for explanation of this setup. Simply put, we are looking to short a reversal if SPY forms a double top by failing to rally above its prior high. Also note that the trigger and stop prices are different than yesterday’s intraday alert that did not trigger.

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 = + $85

FXI long (200 shares remaining from Feb. 21 entry) –
bought 73.15, stop 73.25, target new high (will trail stop), unrealized points = + 0.49, unrealized P/L = + $98

Closed positions (since last report):

net P/L = ($750)

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

$47,413

Notes:

Click
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