Commentary:

Trading kicked off the holiday-shortened week on a negative note yesterday, as the broad market trended lower throughout the session, but a late-day reversal halved the substantial closing losses of the major indices. The blue-chip Dow Jones Industrial Average showed the most relative strength by losing just 0.7%. The S&P 500 slid 1.8% and the Nasdaq Composite fell 2.0%. The small-cap Russell 2000 and S&P Midcap 400 indices shed 2.3% and 2.4% respectively. Thanks to buying interest in the final thirty minutes of trading that lifted stocks off their lows, each of the main stock market indexes closed near the middle of its intraday range.

As is typically the case during holiday weeks, turnover eased quite a bit. Helping to ease the sting of yesterday’s losses, total volume in the NYSE declined 45%, while volume in the Nasdaq was 30% lower than the previous day’s level. Higher turnover, especially at above average volume levels, would have pointed to institutional selling. Instead, yesterday’s broad-based decline was more the result of lack of buyers than an abundance of sellers. This is notable because the results of such sessions can be easily reversed with just one session of decent buying interest. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a margin of just over 4 to 1.

The solar energy sector acted well last week, as Claymore Global Solar Energy (TAN) popped above resistance of its recent consolidation and 20-day exponential moving average (EMA) on December 17. At the same time, leading solar energy stock First Solar (FSLR) broke out above more significant resistance of its 50-day moving average. If FSLR resumes last week’s leadership, TAN may enter into a new intermediate-term uptrend when it moves above last week’s highs. On the daily chart of TAN below, notice how TAN has pulled back to support of its 20-day EMA, positioning it for a potential buy entry above yesterday’s high:

Drilling down to the short-term hourly chart interval of TAN allows you to see the logical entry point, which is a rally above the three-day downtrend line off last week’s high. This corresponds to a move above yesterday’s high, as well as its breakout level. We’ll be monitoring the price action of TAN today, and will promptly send an Intraday Trade Alert to subscribers if/when TAN meets our buy entry criteria. The hourly chart of TAN is shown below:

Throughout most of yesterday, it looked as though stocks were headed for potentially whopping losses into the close. However, the key short-term support levels we’ve been discussing “did their thing” to spark the late-day reversal that followed suit. As you may recall, we’ve been stressing the importance of the major indices holding support of their December 12 lows. On the hourly chart of the S&P 500 below, notice how the index swiftly reversed after coming into the vicinity of its prior “swing lows:”

On the daily charts, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are now back below their 10, 20, and 50-day moving averages. Still, we can’t declare the current rally attempt as being in trouble unless any of these indices close below their December 12 lows.

Because of anticipated low volume during the holiday week, we tightened our stops in both Semiconductor HOLDR (SMH) and Ultra QQQ ProShares (QLD) to breakeven yesterday, and both subsequently triggered for exit. Initially, both ETFs moved well below their trailing stop prices, but the late-day strength enabled SMH and QLD to close within a few pennies of where we exited them. Although we’ll be observing their price action for potential re-entry within the next day or two, we’re not that excited about jumping back into a broad-based ETF during one of the traditionally lightest volume weeks of the year. Instead, we prefer ETFs with a lower correlation to broad market direction. Presently, both iPath India (INP) and iShares Xinhua China 25 (FXI) are still open, and are showing unrealized gains since our entries. As per yesterday’s commentary, we’re also looking for a buy entry into iShares Silver Trust (SLV) above the two-day high.

HOLIDAY SCHEDULE: The U.S. stock market will close early, at 1:00 pm ET, on Wednesday, December 24, close the entire day on Thursday, December 25, then return to a normal schedule on Friday, December 26. As such, an abbreviated version of The Wagner Daily will be published on December 24, no publication will occur on December 25, and regular publication will resume on December 26.

---

Today’s Watchlist:

iShares Silver Trust (SLV)
Long

Shares = 500
Trigger = 10.88 (above the two-day high)
Stop = 9.68 (below the 50-day MA)
Target = 13.45 (resistance of Sept. 2008 highs)
Dividend Date = n/a

Notes = This setup from yesterday did not yet trigger, but remains on our watchlist going into today. See commentary in yesterday’s Wagner Daily for explanation of the setup.

In addition to SLV, we’re watching TAN for potential buy entry, but are not listing detailed trade parameters here in the pre-market. If we enter TAN, we’ll promptly send an Intraday Trade Alert with details.

---

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 29.78, target 35.70, unrealized points = + 3.20, unrealized P/L = + $800

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

bought 27.18, stop 26.88, target 34.10, unrealized points = + 1.68, unrealized P/L = + $336

Closed positions (since last report):

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

bought 26.08, sold 26.12, points = + 0.04, net P/L = + $6

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

bought 17.27, sold 17.27, points = + 0.0, unrealized P/L = ($10)

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

$13,874

Notes:

• Both SMH and QLD hit our trailing stops, knocking us out of the trades with a scratch (gain or loss of less than $100). Though we could have given them more “wiggle room,” it wasn’t worth the risk with such anticipated light volume coming up. We’ll consider re-entering them in the coming days, and will send an alert if we do so, but we prefer ETFs with a lower correlation to the broad market right now (SLV, TAN, et cetera).
• INP and FXI stops remain looser because both ETFs were showing much more relative strength than SMH and QLD. As such, we’re willing to hold them through this pullback, in anticipation of new highs in the near-term.
• 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.

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