The Wagner Daily


In round two of voting, the U.S. Congress passed the controversial financial bailout bill last Friday, but the stock market’s initial reaction was nonchalant. Though stocks climbed higher ahead of the afternoon announcement, traders and investors sold into the news, causing the major indices to erase earlier intraday gains of approximately 3% and finish firmly in negative territory. The S&P 500 Index fell 1.4%, as the Nasdaq Composite and Dow Jones Industrial Average registered matching losses of 1.5%. The small and mid-cap indexes, which closed at fresh multi-year lows the previous day, continued to exhibit significant bearish divergence. The Russell 2000 tumbled 2.9% and the S&P Midcap 400 dropped 2.5%. The main stock market indexes finished at their intraday lows for the second consecutive day.

Turnover was mixed. Total volume in the NYSE eased 2% below the previous day’s level, but volume in the Nasdaq rose 15%. With last Friday’s higher volume loss, the Nasdaq suffered another bearish “distribution day.” Volume moved back above 50-day average levels, while market internals were firmly negative. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a margin of approximately 5 to 2.

CurrencyShares Japanese Yen Trust (FXY), which tracks the value of the Japanese yen versus the U.S. dollar, may be in play this week. Three weeks ago, FXY broke out above its six-month downtrend line, which began with the high of March 2008. Upon doing so, FXY initially chopped around in a sloppy range, but its range has recently tightened up. Last week, FXY held support of both its 20 and 200-day moving averages, which are converging to form support just below last week’s low. Now, FXY is in play on the long side if it break out above its short-term downtrend line. It’s also nice that FXY has a low correlation to the general direction of the broad market. Regular subscribers will see our detailed trigger, stop, and target prices below. Following, the first chart illustrates the breakout above the weekly downtrend line, while the daily chart that follows shows the breakout buy point:

Last Friday’s late-day sell-off caused all the major indices to break below their September 29 lows and close at fresh multi-year lows. As such, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are now likely to test support of their 61.8% Fibonacci retracements discussed in the October 2 and 3 issues of The Wagner Daily. To refresh your mind, that would be a drop to the 1,077 level for the S&P 500 (2% below the current price), a fall to 9,871 in the Dow Jones Industrial Average (4.4% below the current price), and a descent to 1,778 for the Nasdaq Composite (8.7% below the current price). It’s reasonable to expect a test of these levels in the coming week. However, we would be surprised if the 61.8% Fibonacci retracements did not lead to substantial, tradeable bounces.

Whenever the Federal Reserve Board has a meeting on economic policy and announces their decision on interest rates, the stock market’s initial, knee-jerk reaction is often the opposite of the real reaction that occurs one to three days later. As such, it’s reasonable to assume the market’s reaction to last Friday’s passing of the “bailout bill” will play out in the same way. If it does, we could see a solid, counter-trend rally in the first half of the new week. The overall level of fear in the stock market, especially among the retail investors, is rapidly increasing. This, however, is a good thing because it means we are getting all the closer to an inevitable bounce. Furthermore, the faster and harder the market drops, the stronger the bounce will be. Keeping most of your powder dry in the interim will enable you to capitalize all the more on the short and intermediate-term bottom that is getting closer and closer.

Today’s Watchlist:

CurrencyShares Japanese Yen Trust

Shares = 200
Trigger = 95.91 (above the short-term downtrend line)
Stop = 92.87 (below the Sept. 25 low)
Target = 103.20 (test of March 2008 high)
Dividend Date = n/a

Notes = See commentary above for explanation of the setup.

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):

      BBH long (100 shares from October 3 entry) –

      bought 184.06, stop 177.22, target 195.50, unrealized points = (3.26), unrealized P/L = ($326)

    Closed positions (since last report):


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



    • Per Intraday Trade Alert, we bought BBH last Friday. Although the broad market remains choppy and violently volatile, BBH has been exhibiting relative strength. Trade details listed above.
    • 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. 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