The Wagner Daily


Stocks attempted to bounce off of Wednesday’s weakness yesterday, but the rally failed to gain momentum. Nevertheless, the broad market closed a bit higher. The Nasdaq Composite gained 0.6%, the S&P 500 advanced 0.5%, and the Dow Jones Industrials rallied 0.4%. The small-cap Russell 2000 and S&P Midcap 400 were higher by 0.8% and 0.6% respectively. Each of the major indices finished near their intraday highs, but still recovered less than half of yesterday’s trading ranges.

Turnover decreased across the board yesterday, which failed to confirm the positive price action. Total volume in the NYSE dropped off by 7%, while volume in the Nasdaq was 16% lower than the previous day’s level. When stocks advance in a generally weak market, a gain on higher volume indicates that institutional buying interest has returned. But unfortunately for the bulls, we have yet to see such a scenario. Market internals were positive in both exchanges, but by less than a 2 to 1 margin.

Yesterday, a subscriber e-mailed us with a question regarding our trade management of the iShares Silver Trust (SLV). This person was wondering why we still held on to our SLV position after retracing three points, as opposed to selling it into strength of a ten point gain the previous day. Since we figured that a few others may be wondering the same thing, we decided to answer the question publicly in this column.

When swing trading, there are basically only two ways to manage your positions. The first method is that you play only the quick moves and sell into strength of a move rather than trailing your stop. With this style, you are generally in and out of a trade within a few days and would indeed focus on taking a profit anytime the trade shows a gain of more than 2 to 1 of the initial amount of the risk. The benefit of this style is that there is less risk of a pullback, but the downside is that your profit potential is always going to be limited.

The second method is that you take a trending stock or ETF with the intention of holding through natural pullbacks (corrections) within the context of its trend. Doing this requires patience and discipline, but the profit potential is much larger. As regular subscribers may have noticed, SLV is still well below our target price, but we certainly did not expect it to rally right to our target price without a few healthy corrections along the way. Even the strongest of stocks or ETFs never go straight up without taking a break. Pauses are natural along the way and we generally will sit through those, just as long as the trend remains intact. We correspondingly trail our stops each time an ETF rallies above the prior high after a correction (or drops below prior low when short). This is how we are managing SLV, and is also the way we generally manage most positions. How can one ever expect to achieve a potential 10-point gain in the first place if not willing to hold through a correction.

Most importantly, we want to say that you are always encouraged to make your own decisions as to when to take profits on a position! If we are holding a stock longer than you are comfortable with, then we strongly recommend you close the position and feel good about it! A trader must be comfortable with his or her own style, so there is nothing wrong with closing out a trade before we do. We’re simply holding for the next swing back up, but it doesn’t mean you are required to do so. When a trader follows a system that suits his or her personality, it is always the first step to consistent profitability.

Looking at the daily charts, yesterday’s action did little to change the technical picture of the broad market. The S&P 500 recovered to close back above its 200-day moving average, but only by a nominal amount. Our bias going into today remains neutral on the short-term, but bearish on the intermediate-term. In the near-term, we may continue to see a lot of choppy and indecisive action as the bulls and bears battle it out. The past few days of choppy intraday action are indicative of this. But in the intermediate-term, one can only conclude that the broad market remains in a steady downtrend. Until the downtrends in the major indices are broken, along with the confirmation of higher volume, there is no reason to get excited right now. Consider trailing stops tighter on your short positions, and monitor a list of potential long positions, but we basically consider the market to be in a holding pattern right now.

Today’s Watchlist:

There are no new trade setups for today, as we already have four open positions.

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):

      SLV long (100 shares from August 1 entry) –
      bought 115.09, stop 117.80, target 133.50, unrealized points = + 6.12, unrealized P/L = + $612

      IWM short (250 shares from August 1 entry) –
      sold short 68.65, stop 70.80, target 61.70, unrealized points = + 0.35, unrealized P/L = + $88

      SDS long (300 shares from August 8 entry) –
      bought 70.73, stop 68.60, target 75.30, unrealized points = + 0.03, unrealized P/L = + $9

      PPH long (250 shares from August 10 entry) –
      bought 74.41, stop 72.65, no target (trailing stop due to new high), unrealized points = + 0.03, unrealized P/L = + $8

    Closed positions (since last report):


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



      Per intraday e-mail alert, we bought PPH ahead of its initial trigger price yesterday. No other changes to stops.

    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