The Wagner Daily


Yesterday’s broad market price action mirrored the previous day’s, as stocks opened nearly flat, then trended lower throughout the day. This time, however, the lack of a late-day reversal caused the major indices to finish near their intraday lows. The Nasdaq Composite lost 0.7%, the S&P 500 1.0%, and the Dow Jones Industrial Average 1.2%. The small-cap Russell 2000 fell 1.4%, as the S&P Midcap 400 Index receded 0.9%. Despite another session of losses, all the main stock market indexes held above their previous day’s lows. As such, yesterday’s session did not change the current technical picture of the broad market.

Not surprisingly, volume dwindled even further ahead of Thursday’s Christmas holiday. Total volume in the NYSE declined 12% below the previous day’s level, while volume in the Nasdaq ticked 19% lower. It was the lightest full day of trading volume in the Nasdaq so far this year, and one of the slowest in the NYSE as well. With today’s Christmas Eve session closing three hours early, we should expect trading to be lethargic as well. Although the major indices lost an average of 1% yesterday, market internals were not that bad. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a margin of just over 2 to 1.

Several subscribers e-mailed us yesterday morning, inquiring about the dramatically lower opening prices in many of the ProShares Ultra and UltraShort ETFs. UltraShort S&P 500 ProShares (SDS), for example, opened 13.8% (12 points) below the previous day’s closing price, even though the S&P 500 Index started the day only 0.3% higher. For those who were not aware, and perhaps thought there was something wrong with their computer, this discrepancy was simply attributed to the quarterly distribution of substantial dividends, as well as short and long-term capital gains on the ProShares ETFs. Since SDS traded “ex-dividend” on December 23, its price was automatically adjusted to be 11.48 points lower. This means SDS technically only opened half a point below the previous day’s closing price. The remaining 11.48 points will be distributed to shareholder accounts on December 30. Whenever a dividend distribution occurs in an ETF position we’re holding, we simply lower our stop and target prices by the exact amount of the payout to compensate for the price adjustment.

The ProShares ETFs are not unique with their dividend distributions, as hundreds of various types of ETFs also pay dividends on a regular basis. However, because of the complex nature of the composition of the inversely correlated Short and UltraShort ETFs, short and long-term capital gain distributions can be shockingly large. Although the $11.48 per share distribution of SDS was humongous, consider that UltraShort Semiconductors ProShares (SSG), as well as a few others, had a short-term capital gain distribution of more than 40 points! To prevent having these ETFs unintentionally trigger your stop prices due to quarterly dividend distributions, we suggest being aware of the anticipated “ex-dividend” dates, then adjusting your protective stop prices accordingly. A complete list of past distribution dates for all the ProShares ETFs can be found by clicking here.

Overall, yesterday’s broad market action was dull and uneventful. Since the week of Christmas is traditionally the slowest of the year, the lethargy was to be expected. The December 12 “swing lows” of the major indices are still important technical support levels, but we would not place much value on a test, or even a break, of those lows that might occur today. Unfortunately, we may not know the real direction of the market’s next move until traders return to their desks after the New Year’s Day holiday. So, rather than gluing yourself to the computer screen this morning, you may just as well set your stops and spend the day with your friends and family (or doing last-minute shopping). We at Morpheus Trading Group sincerely wish you a Merry Christmas, Happy Hanukkah, and Happy Kwanzaa. See you on Friday!

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, The Wagner Daily will not be published on December 25, but regular publication will resume on December 26.

Today’s Watchlist:

There are no new setups in the pre-market today. SLV did not trigger, and has temporarily been removed from our watchlist, but we’ll still consider entry on a reversal back above yesterday’s high. We also continue to monitor Claymore Global Solar Energy (TAN) for potential buy entry.

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 29.21, target 35.70, unrealized points = + 1.52, unrealized P/L = + $380

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

      bought 27.18, stop 25.89, target 34.10, unrealized points = + 0.64, unrealized P/L = + $128 (see note below)

    Closed positions (since last report):


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



    • On December 23, FXI traded “ex-dividend,” following a dividend distribution of 21 cents per share. As such, our unrealized gain is now the actual point gain, plus the 21 cents per share that will be separately paid to your account by year-end. We have also lowered our stop to account for the dividend distribution, as well as putting the stop back below the 50-day MA. We’ve also given the INP stop a little more “wiggle room” to account for accentuated volatility that occurs on light volume days. The INP stop is now at breakeven.
    • 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