The Wagner Daily | July 3, 2006

Commentary:

The major indices meandered in a narrow, sideways range last Friday before finishing modestly lower ahead of the holiday weekend. The Nasdaq Composite edged 0.1% lower, the S&P 500 declined 0.2%, and the Dow Jones Industrial Average lost 0.4%. Small and mid-cap stocks showed relative strength by building on their previous day’s gains. The Russell 2000 rallied another 1.5%, bringing its two-day gain to 5.3%, while the S&P Midcap 400 tacked on another 0.5%. For the week, it was a solid recovery across the board. The S&P 500 advanced 2.1% and the Nasdaq Composite gained 2.4%.

Total volume increased by 25%, while volume in the Nasdaq was 30% higher than the previous day’s level. Normally, it would be considered a bearish “distribution day” if the major indices lost on higher volume. However, much of the volume increase can be attributed to the annual rebalancing of the Russell indexes. Once a year, underperforming small-cap stocks in the Russell indexes are removed, while new ones are added to replace them. This typically results in volume spikes in many small cap stocks, and hence the overall market. Further, such small percentage declines in the S&P and Nasdaq were positive considering that the indices surged 2.2% and 3.0% respectively in the previous session. Over the past two months, stocks have had a pattern of giving back a majority of their gains the following day. Market internals were negative, but not by a wide margin. In the Nasdaq, declining volume fractionally exceeded advancing volume by only 1.1 to 1. The NYSE was negative by only 3 to 2, which is not bad for a down day.

Our two open positions made solid advances last Friday, so we will continue to maximize the profits and protect the gains by trailing stops along the way. The Telecom HOLDR (TTH) advanced 0.8% and the StreetTRACKS Gold Trust (GLD) zoomed another 2.9% higher. TTH closed at nearly a three-month high and is now only 1.5% away from its 52-week high. We expect a test of that high over the next week, although we will be on guard for a potential failed breakout at resistance of that prior high. Last Thursday’s interest rate hike had a positive impact on the price of spot gold and GLD, which gapped up above a three-week trading range. GLD still has a long way to go before recovering back to its all-time high, but that’s okay. We bought GLD with the expectation of it simply bouncing back up to its 50-day moving average. The 50-day MA also happens to be equal to a 50% Fibonacci retracement from its May high down to its June low, so it is not unreasonable to expect such a recovery after the downtrend line has been broken:

Going into today’s shortened session, keep an eye on how the S&P, Nasdaq, and Dow all react near their 50-day moving averages. Both the S&P 500 and Dow Jones Industrial Average ran into resistance of their 50-day MAs last Friday. The Nasdaq Composite is still just below its 50-day MA. As mentioned in the June 30 issue of The Wagner Daily, resistance of the prior highs from June 2 is also a pivotal level. On the daily charts of the S&P 500 and Dow Jones Industrials, we have circled resistance of their 50-day moving averages. The dashed horizontal line marks resistance of the prior highs:

Support on both the S&P and Dow should be found at their 200-day moving averages, along with the prior highs of the trading range that began in June 15. The Nasdaq still remains below its 200-day MA, but it has support of its prior trading range that began in mid-June as well. None of the major indices will technically be in an uptrend until they break out above their June 2 highs and set a subsequent “higher low.” However, upside momentum from the break of the seven-week downtrend lines should help to prop up stocks at least in the short-term.

NOTE REGARDING HOLIDAY HOURS: In celebration of Independence Day on July 4, the U.S. equities markets will close at 1:00 pm EDT today and will be closed all day tomorrow, July 4. The Wagner Daily will not be published tomorrow, but regular publication will resume on Wednesday, July 5. Enjoy the holiday!

Today’s Watchlist:

There are no new setups today.

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):

stop 57.40

unrealized P/L = + $655

TTH long (700 shares from June 15 entry) –
bought 29.09, stop 28.74, target new high (will trail stop), unrealized points = + 0.85, unrealized P/L = + $595

IYR long (400 shares from June 30 entry) –
bought 71.33, stop 69.62, target 74.90, unrealized points = (0.08), unrealized P/L = ($32)

Closed positions (since last report):

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

$64,765

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