Commentary:

Following through with a second straight ascending “trend day,” the major indices finished the year on a positive note. After climbing steadily throughout the entire session, the Nasdaq Composite rose 1.7%, the S&P 500 1.4%, and the Dow Jones Industrial Average 1.2%. Small and mid-cap stocks showed relative strength again, as the Russell 2000 zoomed 3.4% higher and the S&P Midcap 400 climbed 2.6%. A pullback in the last fifteen minutes of trading caused the main stock market indexes to only finish near the upper third of their intraday ranges, but a bit of whippiness in the final minutes of the year’s trading was not surprising.

Volume ticked moderately higher ahead of the New Year’s Day holiday, but still remained below 50-day average levels. Total volume in the NYSE swelled 35%, while volume in the Nasdaq increased 11% above the previous day’s level. The broad-based gains on higher volume technically enabled both the NYSE and Nasdaq to register a bullish “accumulation day,” though the implication of institutional buying could be deceiving because turnover was already at such low levels. Market internals remained very strong for a second consecutive day. In the NYSE, advancing volume exceeded declining volume by a margin of more than 6 to 1. The Nasdaq adv/dec volume ratio was positive by 4 to 1.

Over the past week, we’ve discussed the bullish patterns in several of the alternative energy ETFs. On December 31, two ETFs we’ve been monitoring, Claymore Global Solar Energy (TAN) and Market Vectors Global Alternative Energy (GEX), broke out. This is shown on their daily charts below:

Although volume in the overall market remained well below average levels in the December 31 session, notice how turnover in both TAN and GEX exceeded their 50-day average volume levels (the green line on the volume bar chart). This is a subtle sign of initial institutional buying interest, albeit not yet confirmed. As volume in the market begins returning over the next week, TAN and GEX may provide ideal pullback entry points (if not already long from our initial heads-up earlier in the week).

On December 30, both the S&P 500 and Dow Jones Industrial Average rallied to close above key resistance of their 50-day moving averages. The following day, the Nasdaq Composite followed suit, as the S&P and Dow moved more convincingly above their 50-day MAs. Still, the major indices must contend with resistance of their prior highs from early and mid-December before declaring a breakout above the sideways trading ranges of the past three weeks. This is shown on the daily chart of the S&P 500 below:

For the S&P 500, pivotal resistance of the December 2008 highs is near the 919 level, less than 2% above its current price. With a similar chart pattern to the S&P 500, the Nasdaq Composite may face resistance around the 1,600 level. The Dow’s December highs are in the 8,950 to 9,000 range. Over the next week, keep an eye on price action near those levels. If the main stock market indexes manage to clear those highs, the next stop would be their November 2008 highs.

In the December 31, 2008 issue of The Wagner Daily, we discussed several technical reasons a rally above the 50-day MAs of the major indices had a better chance of “sticking” this time, at least in the short to intermediate-term. With the Nasdaq Composite catching up, we now begin 2009 with each of the main stock market indexes above pivotal support of their 50-day moving averages. On a technical level, this is a great way to start the new year, as the 50-day MA is commonly used by institutions as a general indicator of intermediate-term trend direction. The longer the major indices manage to stay above their 50-day MAs, the more buying among mutual funds, hedge funds, and other “smart money” we may see in the short to intermediate-term. Nevertheless, long-term broad market bias remains bearish until stocks reclaim their 200-day moving averages, which are well above current price levels.

---

Today’s Watchlist:

There are no new setups in the pre-market today, as we now have five open positions to focus on managing. 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 = + 2.43, unrealized P/L = + $608

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

bought 16.83, stop 15.78, no target (will trail stop), unrealized points = + 0.78, unrealized P/L = + $468

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

bought 10.42, stop 9.29, target 13.45, unrealized points = + 0.78, unrealized P/L = + $468

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

bought 27.18, stop 25.89, target 34.10, unrealized points = + 2.12, unrealized P/L = + $424 (see note below)

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

bought 31.40, stop 26.68, no target (will trail stop), unrealized points = + 2.48, unrealized P/L = + $372

Closed positions (since last report):

(none)

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

$36,096

Notes:

• Earlier this week, we gave “unofficial” trade ideas to buy TAN and MDY. If you took these trades, both are now showing large gains. However, these were “self-serve” plays we did not add to our model portfolio, as we already had five open positions during this holiday period. As such, their gains will not be reported in our “official” performance statistics. If you’ve taken these trades, consider trailing a stop using the 20-EMA on the hourly chart as a guideline for your trailing stop.
• 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 support@morpheustrading.com 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.

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