The Wagner Daily


Stocks kicked off the week in uneventful fashion, as the major indices opened slightly higher, drifted lower throughout the morning, then chopped around in a sideways range throughout the rest of the day. Like the previous session, the main stock market indexes finished with mixed results. Both the S&P 500 and Nasdaq Composite lost 0.1%. The Dow Jones Industrial Average declined 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices showed relative strength by scoring identical gains of 0.7%. The S&P 500, Dow Industrials, and Nasdaq Composite all settled in the bottom third of their intraday ranges.

Turnover receded to its lightest levels in weeks. Total volume in the NYSE declined 30%, while volume in the Nasdaq limped in 18% below the previous day’s level. In both exchanges, trading dropped well below 50-day average levels. However, the lower turnover was positive because it was basically just a consolidation day. Higher volume with little changed prices would have pointed to “churning,” a bearish event that occurs when stocks rally, then trade sideways on increasing volume. In both the NYSE and Nasdaq, advancing volume was on par with declining volume.

On July 15, we bought the UltraShort Oil and Gas ProShares (DUG), which moves in the opposite direction of the energy sector. However, we scratched the trade intraday due to bullish reversal that was brewing in the broad market. Even though the oil sector was weak that day, we were concerned that energy issues would get a solid boost from general strength in the broad market regardless. We were wrong. The oil-related ETFs continued to fall apart throughout the day, propelling the inversely correlated DUG higher. Oil moved lower over the next two days, but stabilized and began to bounce higher on July 18. Now out of sync with the broad market, the oil sector continued bouncing yesterday as well. This caused DUG to pull back to support of its uptrend line off the July 2 low, as well as its 10-day moving average. This is shown on the daily chart of DUG below:

Now that DUG has nearly retraced back to the level we bought it at last week, the convergence of 10-day MA and trendline support makes it a low-risk buy entry at its current level (remember that buying DUG is basically the same as selling short the oil and gas sector). Nevertheless, despite the short-term trade setup, realize we are not suggesting oil has definitively formed a top. The correction in oil shares simply has not been substantial enough to make such an assessment. Rather, DUG is merely presenting itself as a short-term setup that astute traders may profit from. If buying DUG here, a relatively tight stop can be placed just below the 20-day exponential moving average (1.5 points below yesterday’s close). If DUG rallies back to test its July 17 high, selling into strength of the quick move would net you a gain of about 4 points. A risk of 1.5 points with a potential reward of 4 points means the reward/risk ratio on the setup is better than 5 to 2 (4 points / 1.5 points). For all trades, whether short or long-term, we look for reward/risk ratios of at least 2 to 1.

As expected, Biotech HOLDR (BBH) gapped sharply higher on yesterday’s open. News of the Roche acquisition offer of Genentech (DNA) caused BBH to open 6.4% higher. Per real-time Intraday Trade Alert to subscribers, we sold into strength of that move a few minutes later, netting a gain of more than 19 points (11.2%) on the trade! Admittedly, a bit of luck contributed to that massive winner. However, we originally bought BBH due to relative strength in the biotech sector, which led to a breakout in BBH. The Genentech news was just icing on the cake.

We’re smack in the middle of quarterly earnings season. That means lots of surprises and opening gaps from day to day. After yesterday’s close, Apple (AAPL) trumpeted their latest report card. Though they beat earnings estimates, they lowered their forward-looking expectations. This did not please Wall Street. In the after-hours market, AAPL was last seen trading approximately 10% below yesterday’s closing price of $166.29. Regardless of whether or not you have a position in Apple, this is noteworthy. Google, Microsoft, and Apple all had disappointing news within the past three days. When market leading stocks such as Apple start falling apart, it acts as an anchor on the entire broad market (especially the tech-heavy Nasdaq). We’re not saying last week’s rally attempt off the lows is already dead, but we have not yet seen any indication that it was anything more than a very short-term, counter-trend bounce. Either way, we welcome the direction of the stock market’s next move because we trade what we see, not what we think!

Today’s Watchlist:

As per the commentary above, we are considering a short-term trade to buy DUG on the pullback. However, due to high volatility in the stock market after-hours, we first want to assess opening price action in the energy sector, rather than assigning a specific trigger price in the pre-market. As always, we’ll promptly send an Intraday Trade Alert if/when we buy DUG (or anything else for that matter).

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):

      GLD long (200 shares from July 10) – bought 92.58, stop 91.58, target new high (will trail stop), unrealized points = + 2.54, unrealized P/L = + $508

      RSX long (300 shares from July 16) – bought 51.20, stop 49.24, target 58.45, unrealized points = (1.23), unrealized P/L = ($369)

    Closed positions (since last report):

      BBH long (200 shares total; 100 from July 2, 100 from July 3) – bought 172.18 (avg.), sold 191.40, points = + 19.22, net P/L = + $3,840

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



    • Per Intraday Trade Alert, we sold BBH into strength of the opening gap. The profit of nearly $4,000 equated to a gain of nearly 8% of the $50,000 Wagner Daily model portfolio’s value, our largest gain ever from a single ETF trade.
    • No changes to the GLD or RSX positions at this time. GLD pulled back to support of its 10-day MA and should move higher from here. RSX, on the other hand, has not been following through off the 200-MA as anticipated. We’ll just let it play out with our original stop.
    • We sent an Intraday Trade Alert for daytraders to consider a trade to buy the SKF bounce off the 50-day MA. That worked out pretty well, but will not be counted in our statistics because it was an “unofficial” trade. When possible, we will try to send a heads-up on select trading opportunities for ultra short-term traders, even if they are not counted in our performance statistics.

    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