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The Wagner Daily


Commentary:

Not surprisingly, stocks meandered through another slow session of trading last Friday, as investors and traders remained in holiday mode ahead of New Year’s Day. Oscillating in a narrow range throughout the entire session, the major indices began the day higher, drifted down to slightly negative territory at mid-day, then begrudgingly moved back up in the afternoon. The Nasdaq Composite gained 0.4%, the S&P 500 advanced 0.5%, and the Dow Jones Industrial Average finished 0.6% higher. The small-cap Russell 2000 and S&P Midcap 400 indices posted identical gains of 1.3%. The main stock market indexes settled near their intraday highs.

Volume levels were obviously higher than they were during Wednesday’s holiday-shortened session, but remained well below average. Total volume in the NYSE increased 28%, while volume in the Nasdaq rose just 15%. Expect turnover to remain at depressed levels until at least the new year, as traders won’t begin returning to their desks until the end of this week. Market internals were slightly bullish. Advancing volume in the NYSE exceeded declining volume by a margin of 5 of 2. The Nasdaq adv/dec volume ratio was positive by less than 3 to 2.

While most of the stock market was in hibernation last Friday, the CBOE Gold Index stealthily surged 5%, aided by a 2.7% gain in the price of the spot gold commodity. In recent months, both spot gold and gold mining stocks have traded erratically and in a wide range, making it difficult to stay with any positions. However, this situation may be changing. After a 15% run in its eight preceding days, SPDR Gold Trust (GLD) ran into resistance of its primary downtrend line on December 17. GLD pulled back only nominally in the days that followed, and its trading range tightened up. Then, last Friday, GLD resumed its newfound strength, closing above its 200-day moving average, and right at resistance of its five-month downtrend line. On the long-term weekly chart below, notice how GLD, which follows the price of spot gold, closed right at its primary downtrend line:

If GLD closes above its December 17 high of 86.91, it will have confirmed a breakout above its primary downtrend line. Such a move would likely generate considerable bullish momentum that could propel GLD back to test its all-time high in the coming months. Though it’s too early to jump to any definitive conclusions, we highly recommend keeping an eye on gold this week. We have a sneaky suspicion weakness in the U.S. dollar could aid in leading gold to a major breakout, but we’ll trade what we see, not what we think.

Alongside of spot gold, individual gold mining stocks have also been displaying bullish price action. Market Vectors Gold Miners (GDX), a popular ETF proxy of a basket of gold mining stocks, broke out above a tight band of consolidation and motored more than 5% higher last Friday. This is shown on the daily chart of GDX below:

On the chart above, notice how the 10-day moving average (the purple dotted line) acted perfectly as support throughout last week. This commonly occurs whenever an ETF or stock enters into a steady trend. We also liked the constructive price action in GDX, as its trading range really tightened up from recent months. Within the next day or two, we expect a test of the December 17 “swing high.” If GDX powers through that resistance level, it will represent three significant “higher highs” and “higher lows” since its October 2008 bottom. Per Intraday Trade Alert to subscribers of The Wagner Daily, we bought GDX last Friday, after it broke out above the high of its recent consolidation. Presently, the trade is showing an unrealized gain of 2.5% (nearly a point) since our entry. If GDX rallies above its December 17 high, we’ll subsequently trail our protective stop higher, in order to remove risk from the trade.

Over the intermediate-term, silver has been lagging gold. Specifically, it is closer to its 52-week low, and is still well below its 200-day MA. However, in the short-term, we’ve noticed silver has begun to show relative strength. As such, we also bought a position in iShares Silver Trust (SLV) last Friday, after it pulled back and bounced off support of its 20-day exponential moving average. Though we don’t advocate new ETF positions in the broad market during this slow period, we like that silver and gold has shown a low correlation to the price action of the overall market. GDX and SLV join our current positions in INP (India), FXI (China), and Semiconductors (SMH).

As we mentioned last week, low volume markets are notorious for being whippy and choppy. As such, this is not the time to be placing big bets on ETFs closely correlated to the direction of the broad market. Instead, make productive use of your time by conducting an honest year-end review of your trading operations. What did you do right in 2008? What did you do wrong? How will you improve on the areas that need improvement? Write it all down and incorporate it into a firm trading plan that will carry you into the new year. Undoubtedly, it was a challenging year for many traders and investors, but don’t waste energy dwelling on past mistakes; the past cannot be changed. Rather, take a deep, sincere look at why you made the decisions you made. Doing so will surely pay big dividends in 2009!


Today’s Watchlist:

There are no new setups in the pre-market today, as we now have five open positions to focus on managing. TAN remains on our watchlist.


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 = + 1.09, unrealized P/L = + $218 (see note below)

      SLV long (600 shares from Dec. 26 entry) –

      bought 10.42, stop 9.29, target 13.45, unrealized points = + 0.22, unrealized P/L = + $132

      GDX long (150 shares from Dec. 26 entry) –

      bought 31.40, stop 26.68, no target (will trail stop), unrealized points = + 0.85, unrealized P/L = + $128

      SMH long (600 shares from Dec. 24 entry) –

      bought 16.83, stop 15.78, no target (will trail stop), unrealized points = (0.12), unrealized P/L = ($72)

    Closed positions (since last report):

      (none)

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

      $34,542

    Notes:

    • Per Intraday Trade Alerts, we bought both GDX and SLV on December 26. These are intended to be intermediate-term trades. Details listed above.
    • 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

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