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The Wagner Daily


Commentary:

Yesterday’s action was a tale of two markets. Stocks drifted steadily lower throughout the first half of the day, then reversed to trend higher later in the afternoon. By the closing bell, all the major indices still finished moderately lower, but within the confines of their recent bands of price consolidation. The S&P 500 and Dow Jones Industrial Average, both down 1.7% at their intraday lows, closed with matching losses of just 0.4%. Halving the loss at its lowest level of the day, the Nasdaq Composite settled 1.3% lower. The small-cap Russell 2000 and S&P Midcap 400 indices fell 2.2% and 1.5% respectively. The Nasdaq Composite closed in the middle of its intraday range, as the S&P 500 and Dow Jones Industrials finished near the upper quarter of their ranges.

Total volume in the NYSE rose 70%, while volume in the Nasdaq increased 112% above the previous day’s level. Although turnover picked up substantially from last Friday’s painfully slow pace, turnover in both exchanges stayed well below 50-day average levels. Again, this is likely to be the case until after the New Year’s Day holiday has passed. When overall volume levels eventually move back above average, the initial corresponding direction of the stock market will tell us a lot about the intentions of mutual funds, hedge funds, and other market-moving institutions. Until then, one simply cannot read much into the market’s volume patterns throughout this holiday period.

In yesterday’s commentary, we looked at the relative strength displayed by several gold and silver ETFs in last Friday’s session. Ignoring the broad-based losses that occurred in yesterday’s session, gold and silver followed through to build on the previous day’s gains. The CBOE Gold Index ($GOX) rallied 3%, bringing its two-day gain to 8%. The 0.9% gain in SPDR Gold Trust (GLD) was less impressive, but was enough to cause GLD to breakout above closely-watched resistance of its five-month downtrend line. Its weekly chart is shown below:

Now that GLD is breaking out above its primary downtrend line, the next stop should be resistance of its September/October 2008 highs, at the $91 to $92 area. Prior resistance of the five-month downtrend line should now act as support on any pullback, but consider giving your protective stop a few points “wiggle room” below the trendline. Though we don’t have a position in GLD, we own Market Vectors Gold Miners (GDX) instead; GDX advanced another 3.2% yesterday. We also continue to hold iShares Silver Trust (SLV), which matched yesterday’s 0.9% gain of GLD.

In the December 23, 2008 issue of The Wagner Daily, we pointed out early signs of strength in the solar energy sector, and correspondingly added Claymore Global Solar Energy (TAN) to our watchlist. After a few more successive days of flat, narrow-range trading, TAN attempted to break out above key resistance yesterday. Though weakness in the broad market held the solar stocks back, TAN has a good possibility of showing leadership to the broad market when stocks eventually bounce. As such, we continue to monitor TAN for a potential breakout and buy entry. Even though its 50-day MA is just overhead, momentum from a breakout of such a tight consolidation should enable TAN to blow through that resistance level if it goes:

Taking an updated look at the charts of the main stock market indexes, we see the S&P, Dow, and Nasdaq once again bounced off lower channel support of their recent bands of consolidation. The blue horizontal line on each chart below illustrates the clear support levels of each index. Common ETF proxies of SPY, DIA, and QQQQ are shown, rather than the actual indexes:

Since yesterday’s lows clearly correlate to obvious levels of support, our overall short and intermediate-term biases on the broad market remain cautiously bullish, as long as yesterday’s lows are not violated. Further, since the major indices formed bullish “hammer” candlestick formations, closing prices above yesterday’s highs could trigger the necessary bullish momentum to finally break out above resistance of the 50-day moving averages. Nevertheless, if any of the major indices close below the support levels shown above, we’ll be forced to re-assess the market, as well as the possibility of jumping back on the short side of the market for more than just a daytrade.

Because it bears repeating, we’ll conclude with the same thoughts… Since low volume markets are notorious for being whippy and choppy, 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. If we enter any new positions, 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 29.21, target 35.70, unrealized points = + 1.77, unrealized P/L = + $443

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

      bought 27.18, stop 25.89, target 34.10, unrealized points = + 1.27, unrealized P/L = + $254 (see note below)

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

      bought 31.40, stop 26.68, no target (will trail stop), unrealized points = + 1.63, unrealized P/L = + $245

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

      bought 10.42, stop 9.29, target 13.45, unrealized points = + 0.35, unrealized P/L = + $210

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

      bought 16.83, stop 15.78, no target (will trail stop), unrealized points = + 0.02, unrealized P/L = + $12

    Closed positions (since last report):

      TWM long (150 shares from Dec. 29 entry) –

      bought 71.80, sold 72.81, points = + 1.01, net P/L = + $149

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

      $34,920

    Notes:

    • Per Intraday Trade Alert, we bought the inversely correlated UltraShort Russell 2000 ProShares (TWM), after it broke out above resistance of its hourly downtrend line. This worked nicely as a hedge to our long positions, but we trailed a tight intraday stop due to the major indices being at key support levels (as per the charts above). When the market rallied later in the day, TWM reversed back down, but we still netted a gain of 1 point on the trade. Had the market not reversed higher in the afternoon, we would have kept TWM overnight instead. We took the trade primarily as a way to reduce our portfolio risk, so it was a bonus that we scored a quick, albeit small, profit as well.
    • For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
    • 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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