The Wagner Daily


Brushing off the previous day’s weakness, the major indices cruised to another round of fresh 2009 closing highs yesterday, though the rally lacked the punch of higher volume. After opening near the flat line, stocks trended higher in the morning session, then drifted in a sideways range throughout the afternoon. The Dow Jones Industrial Average advanced 1.0%, as the S&P 500 and Nasdaq Composite scored matching gains of 0.9%. The small-cap Russell 2000 kept pace with the broad market by closing 1.0% higher, but remained just below last week’s high. The S&P Midcap 400 climbed 1.1% and marginally finished at a new high of the year. With respectable closing price action, the main stock market indexes finished around the upper 20% of their intraday ranges.

Total volume in the NYSE was 22% lighter than the previous day’s level, while volume in the Nasdaq receded 12%. In both exchanges, volume fell back below 50-day average levels, indicating a lack of accumulation amongst mutual funds, hedge funds, and other institutions. Considering the solid percentage gains of the broad market, market internals were not that impressive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of just over 2 to 1. This tells us the gains were not far reaching into most industry sectors.

One of the strongest ETF performances in yesterday’s session was had by PowerShares Base Metals (DBB), which jumped 3.9%. More importantly, DBB finally broke out above its lengthy (11-week) band of consolidation, enabling it to close at a new 52-week high. We’ve been long DBB since mid-September, when it gapped down to “undercut” its 20-day exponential moving average. In the weeks that followed, DBB merely chopped around in a range, but yesterday’s breakout could finally spark some decent upside momentum in the near-term. Now that DBB has broken out, we’ve trailed our stop higher, to just below yesterday’s low. In the event of a failed breakout, this will enable us to still lock in a small gain on the trade. The daily chart below illustrates the breakout:

In addition to DBB, commodity ETFs have been heating up across the board, creating additional buying opportunities. PowerShares Agriculture Fund (DBA), comprised of a basket of food commodities including sugar, corn, and soybeans, recently broke out above resistance of its long-term downtrend line, and is now positioned to move above a significant band of horizontal price resistance. This is shown on the weekly chart of DBA below:

With an approximate 40% weighting in crude oil futures, and a roughly 15% weighting in spot gold futures, the DB Commodity Index Tracking Fund (DBC) has been trending steadily higher since breaking out above its four-month downtrend line. We’re already long the U.S. Oil Fund (USO), which understandably has a similar chart to DBC. But if not already positioned in the commodities arena, either DBC or USO look good for buy entry on a pullback to support. In this case, the 10-day moving average could provide a low-risk entry point. On the chart of DBC below, the 10-day MA is the dashed, purple line.

Precious metals ETFs may be headed back up, after recently correcting down to short-term support of their 10-day moving averages. With gold trading at a new high, well above the $1,000 mark, there’s virtually no resistance to hold it down. Per Intraday Trade Alert to regular subscribers, we bought a half position in iShares Silver Trust (SLV) as it rallied yesterday afternoon. We plan to add the remaining shares on confirmation of a breakout to a new high.

Today’s Watchlist:

UltraShort 20+ year T-bond (TBT)

Shares = 250
Trigger = 46.42 (above the Oct. 19 high)
Stop = 44.22 (below the 20-day EMA and 61.8% Fibonacci retracement)
Target = 53.80 (resistance of the Aug. 2009 high)
Dividend Date = n/a

Notes = This setup from yesterday did not yet trigger, but remains on our watchlist going into today. Note the new share size and trigger price, and see yesterday’s commentary above for explanation of this setup, which is a bullish trend reversal play.

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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  • Per Intraday Trade Alert, we entered a new position in SLV yesterday. Note this is only a half-sized position. If SLV confirms the pullback by rallying to a new high, we will probably add to the existing position. For now, however, our initial risk is limited to just $300. Trade details on SLV shown above.
  • We raised the stops on FCG and DBB. Although FCG is still acting quite well, we’re not interested in sitting through a pullback with the broad market rather extended. Instead, we’re now using a very tight stop, just below the 20-EMA/60 min, in order to maximize gains in the event of a pullback. If FCG hits our tightened stop, we’ll simply look to re-enter it on a substantial pullback to support. The stop on DBB, which just broke out yesterday, has been raised to below the October 19 low.

  • 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