The Wagner Daily


Stocks followed through with their second straight day of gains yesterday, but volume continued to decline as well. After opening flat, the major indices moved higher in the first thirty minutes of trading, but subsequently oscillated in a lethargic, sideways range throughout the rest of the session. Even the final hour of the session was uneventful. Both the S&P 500 and Dow Jones Industrial Average gained 0.5%, while the Nasdaq Composite advanced 0.7%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 0.6% and 0.8% respectively. All the broad-based indexes finished just above the middle of their intraday ranges.

As with every other “up” day since the June correction began, turnover declined across the board. Total volume in the NYSE was 9% lighter than the previous day’s level. Volume in the Nasdaq similarly dipped 7%. In both exchanges, advancing volume exceeded declining volume by a ratio of approximately 5 to 2. Since the S&P 500 peaked on June 4, the index has had four “down” days and four “up” days. Each of the “down” days occurred on expanding volume (“distribution days”), while all four of the “up” days had receding volume. Obviously, this is the exact opposite of what a healthy market should be. Yet, the market continues to display resilience in the face of weak underlying internals.

The Semiconductor HOLDR (SMH) put in a solid performance yesterday, prompting us to sell our long position into strength near yesterday’s high. We bought SMH on June 13 when it broke out above its daily downtrend line, then sold only one day later as it neared resistance of its 52-week high. We netted a quick gain of 2.5% with a holding time of just 24 hours:

At the time of initial entry on Wednesday, our plan was to hold SMH for a longer period of time, in anticipation of an eventual breakout to new highs. However, even with the best laid out plans, traders must always account for general market conditions once they enter a new trade.

As discussed in yesterday’s commentary, the stock market has whipped around in an erratic manner over the past week. The tug-of-war between the bulls and bears that recently commenced means that taking profits quickly on new positions is probably a good idea. If one does not, there’s a very realistic risk of giving all the profits back. Because SMH has been showing relative strength, we could have held it longer, in hopes of a shallow pullback, followed by a breakout to new highs. But given what we’ve seen recently, there’s a good chance a subsequent pullback in SMH might be deep enough to trigger a stop. For that reason, we made a judgment call to simply take the quick and easy profit from a one-day hold. Nevertheless, we will continue to monitor the action in SMH. If it forms a base of consolidation over the next several days, a bullish “cup and handle” chart pattern will form. From that, we could re-enter SMH if/when it breaks about above the high of its “handle.” This would enable us to re-buy SMH at nearly the same price, but without the risk of holding it over the next week or so.

Today is “quadruple witching” options expiration, the day on which contracts for stock options, stock index options, stock index futures, and single stock futures all simultaneously expire. Volatility is typically quite high on this day each quarter, as big institutional traders attempt to push stocks towards their desired strike prices. For that reason, any new analysis on support or resistance levels in the broad market would be a moot point. We’ll dive in next Monday with an updated look at the strongest and weakest sectors, as well as support and resistance levels on the major indices. In the meantime, we suggest laying low with new trade entries today.

Today’s Watchlist:

There are no new setups for 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):

      EWO short (300 shares from June 6 entry) – sold short 40.77, stop 41.13, target 37.75, unrealized points = + 0.19, unrealized P/L = + $57

      XME short (200 shares from June 11 entry) – sold short 63.55, stop 65.82, target 58.90, unrealized points = (0.30), unrealized P/L = ($60)

      EWW short (200 shares from June 12 entry) – sold short 61.97, stop 64.39, target 55.10, unrealized points = (1.21), unrealized P/L = ($363)

    Closed positions (since last report):

      SMH long (500 shares from June 13 entry) – bought 36.81, sold 37.72, points = + 0.91, net P/L = + $445

      DXD long (250 shares from June 6 entry) – bought 50.00, sold 49.58, points = (0.42), net P/L = ($110)

      DXD long (250 shares from June 14 re-entry) – bought 49.56, sold 49.22, points = (0.34), net P/L = ($90)

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



      Per intraday e-mail alert, we sold SMH into strength at yesterday’s high. We also re-entered DXD with a tight stop after the initial trade hit our trailing stop. We scratched the re-entry late in the afternoon (gain or loss of less than $100).

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    Edited by Deron Wagner,
    MTG Founder and
    Head Trader