--> The Wagner Daily

The Wagner Daily


Commentary:

Stocks scored substantial gains for the second time in three days, but the major indices failed to recover above the highs of Monday’s vicious sell-off. The S&P 500 advanced 1.5%, the Nasdaq Composite 1.6%, and the Dow Jones Industrial Average 1.7%. Both the small-cap Russell 2000 and S&P Midcap 400 indices gained 1.1%. Although stocks finished near their intraday highs, it was another indecisive session that resembled a roller coaster ride. The major indices stayed in positive territory the whole time, but fell to nearly unchanged levels twice during the day, an hour after the open and an hour before the close.

The most positive aspect of yesterday’s session is that the broad-based gains coincided with higher turnover. Total volume in the NYSE rose 12% above the previous day’s level, while volume in the Nasdaq similarly increased by 10%. The higher volume gains caused both the S&P 500 and Nasdaq to register a bullish “accumulation day,” a rare occurrence these days. The last such sign of institutional buying was back on November 6, before the current correction began picking up steam. In the NYSE, advancing volume exceeded declining volume by a respectable margin of 3 to 1. The Nasdaq ratio was positive by 7 to 2.

While many International ETFs have been correcting with the U.S. markets, the India Index (INP) continues to buck the trend. Two weeks ago, we bought INP when it pulled back to support of its primary uptrend line, then sold it for a quick profit when it bounced a few days later. We did so because, at the time, we didn’t like the odds of holding anything on the long side of the market for more than a few days. However, it subsequently consolidated in a tight range, then popped its head above the range yesterday. Showing impressive relative strength, INP is now the only international ETF poised to break out to a new all-time high. This is illustrated on its daily chart below:

Given the current market conditions, buying and holding anything for more than a day or two is a risky proposition. Nevertheless, one benefit of the international ETFs, and INP in particular, is that they are not directly correlated to the direction of the U.S. markets. When the S&P and Nasdaq confirm they have formed near-term bottoms, INP should be one of the first ETFs to surge higher. Even if the U.S. markets continue to show weakness, there is relatively low risk in holding INP because of the relative strength it has been exhibiting. At least in the intermediate-term, India (INP) is the new China (FXI).

Despite the higher volume gains, the biggest gaining sectors were once again those that were simply bouncing from beaten-down levels. The Banking Index ($BKX) and Securities Broker-Dealer Index ($XBD) were higher by 2.6% and 3.3% respectively. However, the problem is that both indexes closed at 52-week lows the previous day. Recovery attempts are rarely sustainable when the top advancing sectors are merely those bouncing off their 52-week lows. The DJ Utilities Average ($DJU) and CBOE Gold Index ($GOX) have both been showing relative strength by holding near their highs, but those are hardly the type of industry sectors that could lead the broad market higher. Rather, those sectors are typically defensive in nature, a safe-haven from the overall stock market in uncertain times.

Yesterday’s gains failed to change the overall technical picture of the stock market because the major indices each registered an “inside day.” This means that their intraday ranges (from the lows to highs) were completely contained within their respective trading ranges of the previous day. In steadily trending markets, this pattern often leads to a continuation of the dominant trend, which is obviously “down” in this case. Before even thinking about the long side of the market, we would first need to see at least one of the major averages close above its November 26 high. Such action would lead to a good possibility of an intermediate-term bounce within the context of a primary downtrend. But until the S&P, Nasdaq, or Dow manages to overcome the November 26 high, your greatest chance for profitable trading continues to lie on the short-side of the market. Cash, of course, remains an equally viable position.


Today’s Watchlist:


QID – ProShares UltraShort QQQ ETF
Long

Shares = 400
Trigger = HALF above 42.63, HALF above 43.16 (see notes below)
Stop = 41.31 (below yesterday’s close)
Target = 45.58 (near the 200-day MA)
Dividend Date = December 24, 2007

Notes = This setup from yesterday did not yet trigger, but remains on our watchlist going into today. See commentary in the November 27 issue of The Wagner Daily for complete explanation of this setup. Note that we plan to “scale in” to this position by buying 200 shares on the first trigger over yesterday’s high, then adding 200 more above the November 12 high.


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):

      IDU long (300 shares from November 19 entry) – bought 101.09, stop 99.21, target new high (will trail stop), unrealized points (0.06), unrealized P/L ($18)

    Closed positions (since last report):

      (none)

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

      $30,309

    Notes:


      No changes to our sole open position, which continues to show relative strength to the broad market.

    Click here for a free trial to Morpheus Trading Group’s other newsletter services.

    Please check out the Wagner Daily Subscriber Guide to learn how to get the most from your subscription.

Edited by Deron Wagner,
MTG Founder and
Head Trader

Follow us on Twitter

Latest Tweets

@MorpheusTrading