The Wagner Daily | February 17, 2009

Commentary:

Drifting lower in a choppy session, stocks wrapped up a volatile week on a moderately negative note. The Nasdaq Composite slipped 0.5%, as the S&P 500 and Dow Jones Industrial Average posted identical declines of 1.0%. The small-cap Russell 2000 and S&P Midcap 400 indices lost 0.5% and 0.8% respectively. All the major indices closed near their lows of the day, but intraday price action was range-bound. For the week, the Nasdaq shed 3.6%, the S&P 500 4.8%, and the Dow Jones Industrial Average 5.2%.

As is commonly the case ahead of holiday weekends, turnover eased substantially. Total volume in the NYSE declined 16% below the previous day’s level, while volume in the Nasdaq receded 19%. It was positive that stocks averted a “distribution day,” but there have still been several occurrences of institutional selling in recent weeks. Market internals were negative, but not by a wide margin. In the NYSE, declining volume exceeded advancing volume by a ratio of 5 to 2. The Nasdaq adv/dec volume ratio was negative by just under 3 to 2.

Last Thursday, the Dow Jones Industrial Average undercut the lows of its month-long consolidation on an intraday basis, then reversed to close at its intraday high, forming a bullish “hammer” candlestick in the process. This, and similar price action amongst all the main stock market indexes, was initially encouraging. However, between the following day’s losses and the lower opening indicated in today’s pre-market session, the broad market is once again in danger of breaking down. Going into today, the intraday lows of February 12 are key support levels the major indices must hold above. If not, bearish momentum could quickly cause the broad market to break down to new lows of the year, followed by a test of the November 2008 lows. On the daily chart of the S&P 500 below, notice how the February 12 low correlates to a mini “double bottom” with the February 2 low:

If the Dow Jones Industrials loses support of its February 12 low, there’s not much to prevent the index from testing its November 2008 low, which is already a six-year low:

The Nasdaq Composite, which has been showing slight relative strength to both the S&P and Dow, will break support of its multi-month uptrend line if it loses support of its February 12 low, though it could still easily hold its January lows:

Until we see whether or not the major indices hold support of last week’s lows, there’s not much point in looking at possible bullish ETF setups within the various industry sectors. This is because closing prices below those lows will change the short and intermediate-term trend biases to “bearish,” thereby changing our overall sentiment to the short side for new trade entries.

We have a few long positions that are likely to feel some pressure with today’s opening gap down, but the good news is that gold and silver are trading sharply higher in the pre-market. Spot gold, for example, is poised to open today’s session at a fresh seven-month high. This should enable our long position in Gold Double Long (DGP) to hit its original price target of $21.70, locking in a very large gain in the process. Because gold and silver are so susceptible to overnight “gaps,” we prefer to sell DGP into strength, rather than trail a tight stop. Nevertheless, gold technically has the potential to move substantially higher in the intermediate to long-term, so we’ll look for a re-entry point after gold starts to catch its breath and consolidate or pull back.

Today’s Watchlist:

There are no new setups in the pre-market today. As always, we’ll send an Intraday Trade Alert if we spot anything we decide to enter today.

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 = + $2,088

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

bought 31.40, stop 32.78, no target (will trail stop), unrealized points = + 4.28, unrealized P/L = + $642

EWZ long (200 shares from Feb. 12 entry) –

bought 37.48, stop 34.68, target 47.28, unrealized points = + 1.51, unrealized P/L = + $302

IBB long (150 shares from Feb. 3 entry) –

bought 72.12, stop 68.52, target 78.80, unrealized points = + 1.08, unrealized P/L = + $162

INP long (200 shares from Feb. 9 entry) –

bought 31.30, stop 28.18, no target (will trail stop), unrealized points = (0.58), unrealized P/L = ($116)

Closed positions (since last report):

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

$39,652

Notes:

No changes to existing open positions. HOWEVER, note we will automatically sell DGP if it hits the price target of $21.70, with no separate alert confirming such. A sell limit order of $21.70 can be set with your broker.
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