The Wagner Daily


Gapping higher on the open, stocks got off to an encouraging start yesterday, but a subsequent lack of bullish momentum held the major indices in an extremely tight, horizontal range throughout most of the day. A bit of selling pressure in the final two hours of trading erased most of the market’s earlier gains, causing the main stock market indexes to finish with mixed results. Scoring its sixth consecutive day of gains, the S&P 500 finished 0.4% higher. The Dow Jones Industrial Average edged 0.2% higher, but the Nasdaq Composite was unchanged. The small-cap Russell 2000 slipped 0.2%, as the S&P Midcap 400 advanced 0.1%. The major indices closed near, or slightly below, the middle of their intraday ranges.

Total volume in the NYSE eased 4%, while volume in the Nasdaq was 7% lighter than the previous day’s level. In both exchanges, it was the lowest volume day in months. As mentioned yesterday, the lighter than average turnover in recent days gives cause for the bulls to be extra alert. Most likely, institutions will start returning to the market as key corporate earnings reports are announced throughout this week. Their reaction to the latest quarterly numbers will determine the direction of the market’s next substantial move, which will likely be accompanied by a high-momentum volume surge.

Right now, the state of the entire stock market is best summed up by looking at a daily chart of the S&P 500 SPDR (SPY), a well-known ETF proxy of the broad-based S&P 500 Index:

Since bouncing off support of its 50-day MA (the teal line) at the beginning of the month, SPY has logged six straight gains. This puts SPY right at a clear test of its prior highs from last month. The charts of the Dow Jones DIAMONDS (DIA) and Nasdaq 100 Index (QQQQ) are similar, though the latter is lagging slightly. Obviously, it’s bullish that SPY has so quickly and easily been able to climb back to its September highs after pulling back to its 50-day MA, but one must be aware of the sharply declining volume that’s accompanying the rally. In and of itself, the light volume is not a reason to blindly close long positions. Rather, it’s simply a yellow warning flag that short-term bullish momentum may be diminishing.

Our current plan of action is to maximize profits in our existing winning long positions (DGP, FCG, DBB) by continuing to trail stops higher as the short-term 10-day moving averages move higher. As for new trade entries, we’d first like to see the major indices undergo just a near-term correction before deploying additional capital on the long side. Waiting for a near-term correction, either through a modest pullback or a few days of price consolidation, will provide us with much more positive reward-risk ratios for new buy entries. Conversely, entering new trades after a six-day rally into resistance of the 52-week highs carries a substantial risk of positions immediately being put under pressure at the first sign of a market correction.

The good thing about the major indices so neatly trading right at their prior highs is it’s easy to spot relative strength amongst leading sector ETFs. Basically, any ETF already trading above its September high, at a new 52-week high, is determined to have relative strength to the broad market. Conversely, any ETF still trading substantially below its September high is probably showing relative weakness. In yesterday’s commentary, we illustrated two international ETFs with relative strength (RSX and EWZ), so we’ll wrap today’s newsletter with a few more charts of strong ETFs to put on your watchlist for potential buy entry on a pullback. Remember, no chasing the current prices:

Today’s Watchlist:

There are no new setups in the pre-market. As discussed above, we’re presently building a watchlist for potential buy entry on a pullback. New long entries at current levels may not carry very favorable reward-risk ratios, so we’ll focus on managing current positions for maximum profitability instead. Still, 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.

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  • Stops have been raised in DGP, FCG, and DBB. In order to maximize profits, we’ll continue trailing these stops tighter as price action consolidates and/or moves higher. If/when UNG and MOO start to show a decent profit, we’ll trail those stops tighter as well.

  • 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