The Wagner Daily


After shaking out the bulls in the beginning of this low-volume week, the bears got a bit of payback into the end of the week. Positive economic data in the pre-market sparked a higher open in the broad market yesterday, where stocks subsequently built on their opening gains. The Dow Jones Industrial Average jumped 1.9%, the S&P 500 1.5%, and the Nasdaq Composite 1.2%. Small-caps led the way for a second straight day, as the Russell 2000 climbed 2.0%. The S&P Midcap 400 was higher by 1.6%. All the main stock market indexes closed at their intraday highs for a change.

Total volume in the NYSE ticked 12% higher, while volume in the Nasdaq rose 2% above the previous day’s level. It was the Nasdaq’s second consecutive day of higher volume gains, albeit barely. Although turnover in the NYSE increased substantially, volume still remained below average levels. But despite the thin trading, market breadth was quite solid. In both exchanges, advancing volume exceeded declining volume by a margin of more than 4 to 1.

On the surface, yesterday’s session may have seemed quite bullish, but a closer look reveals some interesting observations. While firmly positive market internals told us yesterday’s buying was broad-based among most industry sectors, there was a notable lack of leadership among top sectors and individual stocks. Biotechnology and medical stocks, the leading sectors for the past two months, failed to keep pace with the gains of the broad market. The S&P Healthcare Index ($HCX), for example, only gained 0.9%. In healthy markets, the top stocks in industry sectors with the most relative strength will substantially outperform the gains of the major indices on broad-based “up” days. Instead, leading biotech and medical stocks, such as Celgene (CELG), Genzyme (GENZ), and Intuitive Surgical (ISRG), lagged behind the major indices yesterday.

Rather than the biotech and medical sectors leading the way, the largest gaining sectors yesterday were those that have already been beaten down badly, and were merely bouncing off their lows. The KBW Bank Index ($BKX) rallied 4.5%, the Amex Securities Broker/Dealer Index ($XBD) gained 4.0%, and the S&P Insurance Index ($IUX) advanced 3.5%. Whoopee! Is the lambasted financial sector going to lead us out of the current bear market? Highly unlikely. Broad-based rallies in the stock market simply can not be sustained for long when they are only led by the weakest of all industry sectors.

It’s positive that the S&P 500 and Dow Jones Industrial Average broke out above the highs of their recent trading ranges we illustrated in yesterday’s commentary. However, the Nasdaq Composite closed right at resistance of its 200-day moving average. Recently, on August 22, the “brick wall” resistance of the 200-day MA put the brakes on the Nasdaq’s rally attempt. It could easily do the same again. Similarly, it’s noteworthy to realize the large-cap Nasdaq 100 Index only managed to gain 0.8% yesterday, approximately half of the advances in the S&P and Dow.

After the close of trading, computer giant Dell, Inc. (DELL) announced a drop in net earnings of their latest quarterly results. The news sent the stock 10% lower in after-hours trading, and significantly dragged down the Nasdaq 100 futures as well. As of early this morning, the Nasdaq is now positioned to open right at yesterday’s low. If it does, and fails to immediately reverse higher to fill the gap, the last trading day of the month could be very interesting. We stand by our original assessment that we won’t see the real direction of the stock market’s next move until after the Labor Day holiday.

NOTE: The U.S. stock markets will be closed on Monday, September 1, in celebration of the Labor Day holiday. As such, The Wagner Daily will not be published that day. Regular publication will resume on Tuesday, September 2. Enjoy the three-day weekend!

Today’s Watchlist:

There are no new setups ahead of the holiday weekend.

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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

    Open positions (coming into today):

      TAN long (350 shares from August 27) – bought 25.30, stop 23.39, target 29.30, unrealized points = + 0.80, unrealized P/L = + $280

      IYH long (350 shares total – bought 250 on Aug. 5, added 100 on Aug. 14) –

      bought 66.86 (avg.), stop 65.57, target 71.12, unrealized points = + 0.31, unrealized P/L = + $109

    Closed positions (since last report):

      DXD long (250 shares from August 18) – bought 60.60, sold 59.76, points = (0.70) (see note below regarding dividend), net P/L = ($180)

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



    • Our DXD position stopped us out yesterday, but remember it was only entered as a hedge, like an insurance policy, against our long positions at the time. Because we raised the stop as soon as we were able, the loss was small. Note that DXD paid a dividend of 14 cents per share on August 24. As per our usual policy, the amount of the dividend has been included in the point gain/loss of the trade.
    • Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. Since we followed the DXD stop exactly as listed in yesterday’s Wagner Daily, no alerts were sent to indicate action was taken. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.

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Edited by Deron Wagner,
MTG Founder and
Head Trader