The Wagner Daily


Yesterday was a rather uneventful session, as the major indices opened flat, chopped around on both sides of unchanged, then settled with narrowly mixed results. The Nasdaq Composite eked out a gain of 0.2%, but the S&P 500 and Dow Jones Industrial Average slipped 0.1% and 0.2% respectively. The small-cap Russell 2000 ticked 0.3% higher, while the S&P Midcap 400 dipped 0.1%. Showing indecision all the way into the close, the main stock market indexes finished near the middle of their intraday ranges.

Much of yesterday’s lack of price commitment could be attributed to turnover falling to its lightest levels in weeks. Total volume in the NYSE declined 7%. Trading in the Nasdaq was 3% lowest than the previous day’s level. When overall volume levels are less than average, the lack of institutional participation makes it easy for stocks to drift around in a non-committal manner. With the Christmas Day holiday fast approaching, it was not surprising to see diminished trading interest. With the markets closing early for Christmas Eve on Monday, and obviously closed all day on Tuesday, we certainly don’t expect much more action in the next two days.

Thanks to continued strength in solar energy stocks, the PowerShares Clean Energy Fund (PBW) is poised to break out to a new record high:

If PBW moves just 13 cents higher, it will be trading at an all-time high. However, out of more than 500 ETFs on our daily watchlist, realize that PBW is the only industry sector ETF at a new high. This is not a good sign. As a lone soldier showing such relative strength, don’t expect any further gains to be easily accomplished. Sure, PBW may break out higher, but a weak broad market is likely to put pressure on it. The end result is a whippy breakout attempt. If you nibble on PBW, consider reducing your share size to lower risk. Better yet, just pass it by and wait patiently on the sidelines for the market to show clear signs of strength before buying any long ETFs.

Since the S&P, Nasdaq, and Dow moved in both directions but finished near their opening prices, they formed “doji star” candlesticks on their daily charts. This pattern is indicative of nothing more than indecision and lack of commitment on the part of traders. This pattern in itself is not so unusual. However, it was notable that the “doji stars” occurred just one day after each of the broad-based indexes formed bullish “hammer” candlesticks, typically a reversal pattern off the lows. After a six-day sell-off, Tuesday’s reversal pattern should have led to further gains in yesterday’s session. Instead, there was a complete lack of follow-through. This is illustrated on the daily chart of the S&P 500 SPDR (SPY) below:

Though prices were little changed yesterday, we view it as a negative sign that stocks ignored their technical cue to bounce. This, of course, could be attributed to the lack of institutional participation ahead of Christmas Day, but it’s nevertheless a bearish sign. In the bigger picture, the “head and shoulders” patterns we discussed in yesterday’s commentary continue to weigh on the near-term environment as well.

While observing the price action of leading stocks over the past several days, we quickly came to the conclusion that the present is not a good time to be trading on either side of the market. The lack of follow-through caused by diminished volume levels makes it difficult to catch a trend that lasts more than a few minutes. Whether your preferred trading time frame is intraday, multi-day, or multi-week, the market is less than conducive to low-risk opportunities right now. We’ve learned from experience that forcing trades in such an environment is a surefire way to churn your trading account. This makes your broker happy, but can make you broke!

Rather than searching for the proverbial “needle in a haystack,” use your time productively over the next two weeks by reflecting on your trading operations in 2007. What did you do well? What mistakes need to be corrected going into 2008? What are your profitability targets in the new year? What about maximum loss parameters? Time spent making or updating your master trading plan for the new year will lead to significantly more money in your pocket than attempting to capture every choppy move the market makes in the near-term.

After the New Year’s Day holiday has passed and traders return to their desks, we’ll re-assess the markets and begin looking for new ETF setups in the direction of the trend. But unless something really grabs our interest, we intend to remain in cash until after the holidays have passed. We’ve had quite a profitable month, quarter, and year, so there’s absolutely no reason to risk giving it back in ill-suited trading conditions.

NOTE: The U.S. equities markets will close at 1:00 pm ET on Monday, December 24, and will be closed the full day on Tuesday, December 25. The Wagner Daily will not be published on December 25, but regular publication will resume the following day.

Today’s Watchlist:

There are no new setups for today. GLD did not trigger and has been removed from our watchlist. If it happens to go, we may still buy a PARTIAL position (via intraday e-mail alert), but we’re in no hurry to enter any new positions ahead of the Christmas Day and New Year’s Day holidays.

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):


    Closed positions (since last report):

      PPH long (300 shares from December 4 entry) – bought 82.03, sold 80.30, points (1.73), net P/L ($525)

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



      PPH fell far enough below its 200-day MA to hit our stop yesterday. Just as well, as cash is the best play right now.

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Edited by Deron Wagner,
MTG Founder and
Head Trader