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The Wagner Daily


Commentary:

Stocks extended their winning streak to four straight sessions yesterday, as the S&P 500 and Nasdaq Composite set new closing highs for 2009. However, an afternoon pullback in the broad market caused the Dow to nearly test its morning low, then bounce back up in the final thirty minutes of trading. The Nasdaq Composite gained 1.1%, the S&P 500 0.8%, and the Dow Jones Industrial Average 0.5%. The small-cap Russell 2000 and S&P Midcap 400 indices jumped 1.7% and 1.4% respectively. Finishing below their best levels of the session, the main stock market indexes settled around the upper quarter of their intraday ranges.

Turnover was mixed. Total volume in the NYSE declined 6%, but volume in the Nasdaq surged 24% above the previous day’s level. In both exchanges, turnover moved back above 50-day average levels, indicating the return of substantial institutional participation. The Nasdaq, which began showing relative strength last week, logged a bullish “accumulation day” with yesterday’s higher volume gain. In the Nasdaq, advancing volume exceeded declining volume by a solid margin of nearly 4 to 1. The NYSE adv/dec volume ratio was positive by a respectable ratio of 2 to 1.

Recently, we’ve been discussing the subtle rotation out of the financial sectors and into the tech sectors. Yesterday, we took action with a new trade intended to capitalize on the relative weakness in financials. Specifically, we initiated a short position in the Regional Bank HOLDR (RKH). The daily chart of RKH is shown below:

While the S&P 500 finished at a new closing high of the year yesterday, RKH is still 2% below its 2009 closing high. Although it has gained alongside of the broad market over the past four days, RKH is still showing relative weakness by lagging the broad market. On the “percentage change chart” below, benchmark S&P 500 has gained 1% over the past two weeks, while RKH has lost 1.9%. It is also more clearly apparent that the S&P 500 has rallied back to its late August highs, but RKH is still well below its prior highs:

With a plethora of overhead supply to contend with, from its August band of price consolidation, RKH is likely to have trouble moving higher in the short-term. Furthermore, if the main stock market indexes take a rest within the next day or two, RKH could be one of the first ETFs to slide lower, as well as exceed the losses of the broad market. This is because stocks and ETFs with relative weakness are typically the first to plunge lower when the broad market reverses lower. They are also the last to climb when the overall stock market is moving higher.

In yesterday’s commentary, we briefly mentioned the potentialhead and shoulders” pattern in that was forming on the daily chart of the S&P 500. With the index finishing above its prior closing highs from late August, the odds of that pattern following through to the downside are now significantly diminished. Nevertheless, the “head and shoulders” pattern is technically still valid, as the S&P 500 remains below the intraday highs form late August (the “head” on the pattern). Furthermore, yesterday’s performance in the laggard Dow Jones Industrial Average failed to confirm the S&P 500’s rally to a new closing high. If any of the major indices are to head back down to test their “swing lows,” the Dow is likely to lead the way lower. Conversely, continued bullishness in the market would likely favor the tech-heavy Nasdaq Composite the most. The Nasdaq and S&P Midcap 400 indices are the only main stock market indexes now trading above their closing and intraday highs from late August, albeit not by a wide margin.


Today’s Watchlist:

There are no new setups in the pre-market today. If we enter anything new, 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.


    Notes:

  • Per Intraday Trade Alerts, we entered new positions in both RKH short and DXD long yesterday (noted by the cells shaded in green color). We also added to our IBB position, as it moved above $80, but later made a judgment call to sell those additional shares for a scratch.
  • Both TWM and SRS hit their stops yesterday. However, because we recently tightened the stops from their original prices, the losses of the two trades combined were equal to just one average loss (approx. $600).

  • 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.
  • 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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