The Wagner Daily | January 9, 2009

Commentary:

Stocks got off to a lower start, indecisively chopped around throughout most of the day, then grinded their way higher to finish with mixed results. The S&P 500 eked out a gain of 0.3%, while the Dow Jones Industrial Average finished lower by the same percentage. The Nasdaq Composite showed relative strength again, enabling the index to advance 1.1%. The small-cap Russell 2000 and S&P Midcap 400 indices rose 1.0% and 0.8% respectively. Both the S&P 500 and Nasdaq Composite closed at their best levels of the day, but the laggard Dow Jones Industrials settled at the upper quarter of its intraday range.

Total volume in the both the NYSE and Nasdaq receded 3% below the previous day’s levels, preventing the S&P 500 and Nasdaq from registering a bullish “accumulation day.” However, upon intraday analysis of the market’s volume, we noted turnover picked up when stocks began rallying in the final hours of trading. At mid-day, trading was on pace to be significantly lighter than it finished. In the NYSE, advancing volume exceeded declining volume by approximately 2 to 1. The Nasdaq adv/dec volume ratio was positive by 5 to 2.

Yesterday morning, we got our entry into Claymore Global Solar Energy (TAN), which we’ve been monitoring for a pullback over the past week. Recall from our recent analysis that we were waiting for a retracement to support of the 50-day moving average, which had converged with the 20-day exponential moving average as well. Since yesterday’s opening gap down put TAN within a few cents of those major support levels, we sent an Intraday Trade Alert to subscribers of The Wagner Daily, informing them we were buying it. On the daily chart below, we’ve circled the pullback to support:

Though it was tempting to buy TAN when upside momentum started kicking in at the end of last week, we’ve learned this market is not strong enough to chase ETFs not bought at the original breakout level. Rather, it’s crucial to have a high degree of patience to wait for the setups to come to you, just as we also did with CurrencyShares Japanese Yen (FXY) this week. With the TAN setup, buying on yesterday’s gap down to support did not require a lot of thought because we had already identified the ETF as having a lot of relative strength after it broke out above resistance. Having the patience and discipline to wait for the proper entry point enabled the trade to immediately show a profit after buying it. On the upside, our approximate target is a test of the November 4 highs, at which point we plan to sell into strength. Our protective stop is below the lows of the late December consolidation.

Although overall market momentum still appears to favor the bulls, traders looking for an ETF short setup with relative weakness might consider the Regional Bank HOLDR (RKH). Its daily chart is shown below:

When the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all recently moved back above their 50-day moving averages, RKH barely moved higher. Then, as the major indices began pulling back, RKH quickly fell back to the lows of its recent consolidation. This relative weakness in RKH tells us it should become a downside leader IF the current correction in the broad market continues lower. But even if the major indices find support at their 50-day MAs and start moving back up, RKH should lag the gains of the major indices. All this makes RKH an ideal hedge to reduce risk against long positions in your portfolio.

As illustrated on the chart above, the first short entry for RKH is a breakdown below the recent closing low of $69.46, set on December 15. But since that day’s intraday low is nearly a point lower ($68.50), minor support may be found at that price. As such, you might consider selling short only half of your intended position size on a break below $69.46, then adding the remaining shares after confirmation from the break below $68.50. In either case, we advise against “jumping the gun” and selling short before either of those support levels are broken. As for an initial protective stop, consider going at least fifty cents above the 20-day EMA, presently at $73.34.

Yesterday’s low in the S&P 500 coincided with short-term support of the 20-day exponential moving average, and was within just one percent of the 50-day moving average we’ve been discussing. With most of the major indices showing strength into the close and finishing at their intraday highs, the broad market is now positioned to resume its intermediate-term uptrend off the November lows. The next important test of resistance will be the January 6 “swing highs.” If/when the major indices move back to their recent highs, we’ll re-assess overall market action to determine the likelihood of stocks making another leg up.

Today’s Watchlist:

There are no new ETF trade setups in the pre-market today. If the stock market heads south and breaks support, we will consider a short entry into RKH (as per above), but we’re hesitant to list exact pre-market parameters until we first assess today’s broad market action.

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):

unrealized P/L = + $440

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

bought 27.18, stop 28.04 (see note below), target 34.10, unrealized points = + 1.81, unrealized P/L = + $362 (see note below)

SLV long (800 shares total; 600 from Dec. 26 entry, 200 from Jan. 6 entry) –

bought 10.64 (avg.), stop 10.22, target 13.45, unrealized points = + 0.35, unrealized P/L = + $280

TAN long (500 shares from Jan. 8 entry) –

bought 8.72, stop 7.28, target 11.41, unrealized points = + 0.37, unrealized P/L = + $185

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

bought 31.40, stop 26.68, no target (will trail stop), unrealized points = + 0.39, unrealized P/L = + $59

USO long (150 shares from Jan. 2 entry) –

bought 34.13, stop 31.30, no target (will trail stop), unrealized points = (0.93), unrealized P/L = ($140)

Closed positions (since last report):

net P/L = + $225

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

$50,702

Notes:

Per Intraday Trade Alert, we bought TAN yesterday morning.
INP gapped below our stop again, triggering the MTG Opening Gap Rules. It stopped out later in the day, locking in a small gain.
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