Commentary:

The Nasdaq snapped its three-day pullback yesterday, resuming the short-term uptrend that began last week. The other major indices tagged along, enabling strong gains to register across the board. The Nasdaq Composite zoomed 1.8%, as did the small-cap Russell 2000 Index. The S&P 500, Dow Jones Industrial Average, and S&P Midcap 400 indices each rallied 1.5%. Despite a significant retracement in the early afternoon that prevented the session from being a powerful “trend day,” stocks recovered to close near their intraday highs.

Total volume in the NYSE swelled 10%, while volume in the Nasdaq similarly ticked 11% above the previous day’s level. The broad-based gains on higher volume enabled both the S&P and Nasdaq to register a bullish “accumulation day” that was indicative of institutional buying. The increased trading activity was also a positive follow-up to the prior day’s lighter volume losses. Still, turnover in both the NYSE and Nasdaq only marginally exceeded average levels. Market internals were firm. Advancing volume in the NYSE exceeded declining volume by nearly 4 to 1. The Nasdaq ratio was positive by just over 2 to 1.

On December 4, we bought the Pharmaceutical HOLDR (PPH) when it broke out above the upper boundary of its “bull flag” formation on the daily chart. Yesterday, PPH followed through with a solid rally up to resistance of its near-term high. A move above yesterday’s high will correspond to a breakout above its October high, which should lead to further gains over the next week. Along with our long position in the iShares DJ Utilities Average (IDU), which is now showing an unrealized gain of approximately 5 points, PPH is one of the few industry sector ETFs showing relative strength by trading at or near its high. The bullish pattern in PPH is shown on the daily chart below:

In yesterday’s commentary, we said that stocks are likely to remain in a sideways range until the December 11 Fed meeting. With resistance of the November 30 “swing highs” and support of the December 4 intraday lows in place, this is still the most probable scenario in the near-term. But one factor that could change the technical picture is a potential breakout of the S&P 500 above its 200-day MA. Take a look at this interesting scenario on the daily chart:

As you can see, the S&P attempted to move back above its 200-day MA on both November 14 and 30, but failed both times. Yesterday, the index closed right at its 200-day MA, meaning it will once again be testing key resistance of its 200-day MA. With both the Nasdaq and Dow back above their 200-day MAs, it would certainly be good for the broad market if the S&P can join them. However, note that the 50-day MA looms overhead at the 1,503 level. Therefore, it may be wise to restrain your buying enthusiasm until we see how institutional traders react to the S&P’s test of its 50-day MA. If long the market, be sure you’re positioned in sectors with relative strength (utilities, health care, pharmaceuticals, and biotechs). The Gold/Silver ETFs and stocks also bear watching, as the sector could easily break out again. We continue stalking the iShares Silver Trust (SLV) going into today’s session.

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Today’s Watchlist:

SLV – iShares Silver Trust
Long

Shares = 150
Trigger = 143.34 (above yesterday’s high)
Stop = 139.47 (below the 50-day MA)
Target = 157.10 (resistance of November high)
Dividend Date = n/a

Notes = This setup did not trigger yesterday, but remains on our watchlist going into today. See commentary in the December 5 issue of The Wagner Daily for a complete explanation of the trade setup.

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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 105.38, target new high (will trail stop), unrealized points + 4.87, unrealized P/L + $1,461

PPH long (300 shares from December 4 entry) – bought 82.03, stop 80.31, target 86.38, unrealized points + 0.84, unrealized P/L + $252

Closed positions (since last report):

(none)

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

$56,649

Notes:


Now that IDU is showing an unrealized gain of nearly three times our original risk, we have trailed the stop much tighter. New stop is just below yesterday afternoon’s intraday consolidation, as well as the 20-MA on the 15-minute chart. If IDU gaps up on today’s open, we may sell into strength of the gap. We will promptly send an intraday e-mail alert if we do so. The SLV setup did not yet trigger, but remains on today’s watchlist for potential entry.

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Edited by Deron Wagner,
MTG Founder and
Head Trader