The Wagner Daily


Stocks finished a choppy week of trading with a round of narrow-ranged, indecisive trading that caused the major indices to finish with mixed results last Friday. The Nasdaq Composite, which drifted higher throughout the day, gained 0.5%. However, the S&P 500 and Dow Jones Industrial Average slipped 0.1% and 0.4% respectively. The small-cap Russell 2000 advanced 0.7%, as the S&P Midcap 400 closed 0.2% higher. The Nasdaq Composite finished near the top of its intraday range. The S&P and Dow closed just above the middle of their ranges. As with Friday’s session, results for the week were also mixed. The Nasdaq rallied 0.6%, but the Dow lost 1.2%. The benchmark S&P 500 declined 0.3%.

Total volume in the NYSE surged 73% above the previous day’s level, while volume in the Nasdaq similarly swelled 58%. But even though volume rocketed higher, the higher turnover was deceiving, as it was completely related to the annual rebalancing of the Russell indexes. Every June, Russell Investments’ popular small and micro cap indexes are adjusted by removing underperforming companies and adding better replacements. When this occurs, index funds tied to the Russell indexes are automatically forced to adjust their portfolios to match the changes. In the case of last Friday’s session, overall volume was actually on pace to be slightly lower than the previous day’s level until the last fifteen minutes of trading. Since the monstrous volume spike into the close appears to be fully attributed to the forced Russell rebalancing, the Nasdaq essentially did not score a bullish “accumulation day,” and the S&P did not register a bearish “distribution day.”

As we enter the holiday-shortened week, the broad market remains at a key, intermediate-term inflection point. Last week, the S&P 500 bounced after testing key support of its 50 and 200-day moving averages. The laggard Dow recovered after becoming the first of the major indices to kiss support of its May 2009 lows, but the index closed just below resistance of its 200-day MA, for the second day in a row. The relatively strong Nasdaq has been holding up the best, as the index fully held above its 50-day MA during last week’s pullback, and remain well above its 200-day MA. While the Dow was testing its May 2009 lows, the Nasdaq found support near its May 2009 highs. Clearly, divergence within the broad market is becoming quite apparent. The resilient Nasdaq is giving the bulls hope, while the unenthusiastic Dow is drawing the bears out of hibernation.

One thing that may shed some light on the short-term divergence between the Dow and Nasdaq is a comparison of the patterns on their longer-term weekly charts. Let’s start with the weekly chart of the Dow Jones Industrial Average:

notice how the Dow ran into resistance of its long-term downtrend line several weeks ago (circled in pink). Since the downtrend has been in place for so long, that trendline undoubtedly has been a factor in the recent relative weakness of the blue-chip index. Although the Dow could easily pop above that downtrend line on its next rally, it wasn’t likely to do so on the initial test of resistance several weeks ago. Now, the Dow’s challenge will be to overcome the bearish “head and shoulders” pattern that is forming on the shorter-term daily chart. If it doesn’t, expect the index to make another leg down, below its May 2009 lows, in the short-term. But a rally above its June high would invalidate the “head and shoulders,” and also cause the Dow to break out above its weekly downtrend line. Next, check out the weekly chart of the Nasdaq:

Unlike the Dow, the Nasdaq still has quite a way to go (approximately 11%) before kissing its long-term downtrend line. That lack of major overhead resistance has been a key factor in enabling the Nasdaq to show relative strength in recent weeks. With no major resistance levels to contend with right now, the Nasdaq could see smooth sailing to new highs within its current uptrend.

With the stock market at a pivotal inflection point, what clue might help us to predict the direction of the broad market’s next move? Most likely, it will all come down to who wins the tug-of-war between the bulls of the Nasdaq and bears of the Dow. If the Nasdaq manages to breakout above its June 11 high, one could expect the Dow to be pulled along with it. Conversely, if the Dow breaks support of its May low first, one could similarly expect the Dow to drag the Nasdaq lower. But until either scenario occurs, we should be prepared for more whippy, indecisive trading conditions. Since the stock market is closed this Friday (for Independence Day holiday), light volume ahead of the holiday could exacerbate any choppy price action.

Today’s Watchlist:

There are no new setups in the pre-market today. If anything new is entered, we will 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):

      IBB long (200 shares from June 8 entry) – bought 70.04, stop 67.12, target 76.48, unrealized points = + 2.79, unrealized P/L = + $558

      UNG long (400 shares from June 11 entry) – bought 15.12, stop 13.59, target 19.80, unrealized points = (0.33), unrealized P/L = ($132)

      DBA long (600 shares from June 17 entry) – bought 26.49, stop 25.64, target 28.78, unrealized points = (0.61), unrealized P/L = ($366)

      SKF long (200 shares from June 24 entry) – bought 44.30, stop 41.22, no target (will trail a stop), unrealized points = (2.19), unrealized P/L = ($438)

      SLV long (700 shares total — 500 shares on June 8, 200 shares on June 11) –

      bought 14.74 (avg.), stop 13.67, target 19.12, unrealized points = (0.84), unrealized P/L = ($588)

    Closed positions (since last report):


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



    • Per Intraday Trade Alert, we raised our stops in DBA and SLV. Since neither ETF has been acting well, our tightened stops take some risk of out of the trades.
    • The DXD buy setup we sent via Intraday Trade Alert did not yet trigger. For now, the setup has been canceled, but we’ll send another alert if the situation changes.
    • 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.
    • 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.

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Edited by Deron Wagner,
MTG Founder and
Head Trader