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The Wagner Daily


Commentary:

A negative reaction to the U.S. Senate rejection of the automotive bailout bill last Thursday night caused stocks to open sharply lower in Friday’s session, but the broad market showed continued resiliency by quickly reversing to close firmly higher. Led by a 4.7% jump in the Philadelphia Semiconductor Index ($SOX), the Nasdaq Composite gained 2.2%. The S&P 500 and Dow Jones Industrial Average lagged behind by rising 0.7% and 0.8% respectively. The small-cap Russell 2000 zoomed 3.8% higher, as the S&P Midcap 400 advanced 2.9%. All the major indices closed near their best levels of the day, but in the middle of last week’s trading ranges.

Total volume in the NYSE edged 1% above the previous day’s level, while volume in the Nasdaq declined 8%. Higher turnover across the board would have been much more positive, as it would have indicated an appetite for stocks amongst mutual funds, hedge funds, and other institutions. Instead, volume levels during the bullish intraday reversal remained rather tepid. It’s been three weeks since trading in either exchange exceeded 50-day average levels. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of approximately 5 to 2.

Standout ETF performance of last Friday’s session was found in the Semiconductor HOLDR (SMH), which formed a “bullish engulfing” candlestick and climbed 6.4%. We bought SMH on December 9, when it surged above its 20-day exponential moving average (EMA) on more than double its average daily volume. After consolidating near that day’s high for two straight sessions, last Friday’s broad market opening gap down briefly caused SMH to dip back below its 20-day EMA, but the bulls immediately began buying the short-lived pullback. Now, SMH is poised to test resistance of its 50-day MA in the coming days:

Because it represented such a large component of the Nasdaq, the $SOX index used to be an important leading indicator of broad market direction. However, the sector has slowly faded out of the limelight in recent years. Now, one might rationalize the Banking Index ($BKX) has become a similar leading indicator of the overall market. Still, it may be a positive sign for the overall market that the beaten-down semiconductor sector is suddenly showing such relative strength. Though it’s unlikely the $SOX (and SMH) will come roaring back in a significant way anytime soon, we’re merely playing the momentum of a short-term, countertrend bounce.

In the December 12 issue of The Wagner Daily, we illustrated how, even though the Dow Jones Industrial Average (and other major indices) fell below support of its short-term consolidation pattern the previous day, it settled at major support of its hourly uptrend line from the November 21 low, as well as its prior, intermediate-term downtrend line. Our overall assessment was that the December 11 sell-off was merely a “shakeout” below an obvious level of horizontal price support, and the more substantial convergence of trendline support below was likely to prevent the Dow from going much lower in the short-term. Since all the main stock market indexes moved back above their 20-day EMAs, as well as their December 11 lows, the trendline support levels indeed are “doing their thing.”

In the overnight futures market going into December 12, the S&P and Nasdaq futures were trading as much as 5% lower on news that the U.S. Senate rejected the automotive bailout bill. In a bear market environment, this could have led to dire consequences for the following day’s market action. Instead, stocks blew off the bad news and actually managed to close higher. This marked the second time in recent weeks that stocks rallied in the face of negative economic news. Previously, stocks were selling off on the release of both bad and good economic news. The 50-day moving averages of the major indices are still in play as key overhead resistance levels, but the December 11 “shakeout” and subsequent reversal may give stocks the necessary momentum to move above last week’s highs in the coming days. Nevertheless, trading may be subdued until tomorrow afternoon’s Fed announcement on interest rates and economic policy.


Today’s Watchlist:

There are no new setups in the pre-market today, as we presently have four open positions. We’ll promptly send an Intraday Trade Alert if/when we enter anything new.


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):

      INP long (250 shares from Dec. 9 entry) –

      bought 29.21, stop 26.38, target 35.70, unrealized points = + 3.19, unrealized P/L = + $798

      FXI long (200 shares from Dec. 5 entry) –

      bought 27.18, stop 24.21, target 34.10, unrealized points = + 2.81, unrealized P/L = + $562

      SMH long (500 shares from Dec. 9 entry) –

      bought 17.27, stop 16.08, target 19.71, unrealized points = + 0.93, unrealized P/L = + $465

      QLD long (300 shares from Dec. 12 entry) –

      bought 26.08, stop 25.12, target 32.60, unrealized points = + 0.91, unrealized P/L = + $273

    Closed positions (since last report):

      (none)

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

      $31,295

    Notes:

    • Per Intraday Trade Alert, we bought QLD last Friday. Tight stop just below the 10-day MA in case the reversal fails.
    • No changes to any stops yet, though we will trail them higher if last Friday’s reversal fails to see upside follow-through.
    • 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

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