--> The Wagner Daily

The Wagner Daily


Commentary:


Stocks got off to a wobbly start yesterday morning, but an
impressive reversal in the final two hours of trading enabled the
major indices to close with moderate gains. The Nasdaq Composite,
down as much as 1.0% intraday, showed relative strength for a
change and finished 0.6% higher. The S&P 500 and Dow Jones
Industrial Average both followed similar intraday patterns and
gained 0.4% and 0.3% respectively. Small caps perked up, causing
the Russell 2000 Index to rally 0.8%, while the S&P Midcap
400 advanced 0.4%. Each of the major indices closed near their
best levels of the session, a distinct change from the recent
pattern of late-day weakness. The morning weakness caused our
long positions in the DJ Real Estate Index (IYR) and the Telecom
HOLDR (TTH) to hit their trailing stops, but we still netted a
profit on both of them.


For the first time since the broad market registered strong gains
on June 29, both exchanges registered bullish “accumulation
days.” Total volume in the NYSE was 24% higher than the
previous day’s level, while volume in the Nasdaq increased by
27%. “Accumulation days,” which occur when the broad
market advances on higher volume, are indicative of institutional
buying. More than half of the stock market’s daily turnover
is the result of trading activity from mutual funds, hedge funds,
pensions, and other institutions. As such, volume spikes in the
market are the footprint of institutional trading activity. The
price action of stocks on those days tells us how the market is
behaving “under the hood.” When a market closes higher
and on higher volume, it is known as an “accumulation
day.” Conversely, a “distribution day” occurs when
stocks close lower, but on higher volume. Following the broad
market’s price to volume action on a daily basis is a great
way to know what the “smart money” is doing before Joe
Public finds out.


Just as quickly as we showed you how the Semiconductor Index
($SOX) had fallen below its 200-week moving average, it snapped
back above it in yesterday afternoon. Sudden strength in the $SOX
was certainly a major reason for the broad market’s late days
reversal. The $SOX recovered all of its previous day’s losses
and then some by rallying 3.3%. Of all the industry sectors we
follow, it was the top percentage gainer yesterday. Nevertheless,
there is no technical reason to begin buying semiconductor stocks
unless your time horizon is very short and you are capable of
selling into strength while maintaining tight stop losses.
Although the semis may see a few days of follow-through momentum
to the upside, there remains a lot of overhead supply
within the sector. When the market reverses, you should focus on
stocks and ETFs that were showing the most relative strength when
the broad market was weak. These, as opposed to stocks and ETFs
near their lows, are usually the ones that make the biggest
gains.


Curiously, the commodities-related sectors posted the biggest
gains outside the Semiconductors. The Oil Service Index ($OSX)
surged 3.0%, while the Gold Index ($GOX) gained 2.7%. A couple of
ETFs that track commodities are also starting to look pretty
bullish on the long side again. We bought the StreetTRACKS Gold
Trust (GLD) when it broke out above its daily downtrend line on
June 21, then sold it into strength for nearly a five-point gain
when it rallied into its 50-day moving average four days ago.
Although we closed the position due to resistance of its 50-day
MA, we have been continuing to monitor its performance over the
past several days. After a brief, two-day pullback, GLD rallied
again and broke out above its 50-day MA yesterday. Ideally, we
would like to see it consolidate in a narrow, sideways range
above its 50-MA, for at least the next one to two weeks, as that
would build a base of support from which GLD could stage its next
leg higher. Regardless, spot gold and the Gold Trust are
continuing to show nice relative strength since breaking out
above that downtrend line last month. We feel it is relatively
low risk to be long GLD, just as long as your stop is not much
below new support of the 50-MA:


The DB Commodity Index (DBC) is another commodity-based ETF that
is showing a bullish chart pattern. It corrected along with the
broad market throughout May and June, then broke out above its
primary downtrend line at the end of June. Since then, it has
already recovered nearly two-thirds of its loss from the May to
June correction, putting it above the pivotal 61.8% Fibonacci
retracement level
. DBC broke out above its 50-day moving
average on July 3, then subsequently consolidated in a narrow
range for four days before breaking out above that range
yesterday. It closed yesterday at its highest price since May 12,
which was only one day after DBC set its all-time high. Looking
at the chart below, notice how DBC is poised to break out above a
major area of horizontal price resistance. If it does, we will
probably see a retest of the May high pretty rapidly:


Outside of Semiconductors and Commodities, the gains in other
sectors were relatively mild. A handful of sectors also closed
lower yesterday, confirming the mediocre breadth readings of the
market internals. Airlines ($XAL) and Home Construction ($DJUSHB)
both shed 1.5%, while Retail ($RLX) and Telecom ($XTC) each fell
0.5%. Pharmaceuticals ($DRG), Transportation ($DJT), Insurance
($IUX), and Computer Networking ($NWX) were all modestly
lower.


Genentech (DNA) announced the results of their quarterly earnings
after the close and they exceeded analyst estimates. However,
sales of a key drug came in below estimates, prompting a negative
reaction in its stock price in the after-hours session. Genentech
was the first of the Nasdaq giants to report its quarterly
earnings, but many more are on tap over the next several weeks.
Genzyme (GENZ), another key biotech company, reports tomorrow as
well, so the biotechs may see some action over the next several
days. Next week, be on the lookout for earnings reports from IBM,
Motorola, Qualcomm, Amgen, and Broadcom, just to name a
few.


Today’s Watchlist:

SLV – iShares Silver Trust

Long

Trigger = above 117.12 (above the July 6 high)

Target = 133.40 (test of May 30 high)

Stop = 110.21 (below the July 10 low)

Shares = 100

Notes = Similar to the Gold Trust (GLD), this is the ETF that
mirrors the price of spot silver. Note that it is highly
volatile, so we are only buying 100 shares based on the $50,000
model account. In the event of a gap up above the trigger price,
remember to use the MTG
Opening Gap Rules
.


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):

MDY short (300 shares — 200 from July
7 and 100 from July 10) –

sold short 137.69 (avg.), stop 140.39, target 130.40, unrealized
points = + 0.03, unrealized P/L = + $9

Closed positions (since last report):

IYR long (400 shares from June 30
entry) –

bought 71.33, sold 72.75, points = + 1.42, net P/L = +
$560

TTH long (700 shares from June 15 entry) –

bought 29.09, sold 29.31, points = + 0.22, net P/L = +
$140

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

$41,298

Notes:

Both IYR and TTH positions hit their trailing stops, so our only
open position is MDY short.

Glossary and
explanation of terms used in The Wagner Daily

View
MTG’s past performance results (updated monthly).

Edited by Deron Wagner,

MTG Founder and
Head Trader

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