The Wagner Daily


Resuming the intraday weakness of the previous day’s session, stocks sold off through the first forty-five minutes of yesterday’s trading, but the broad market subsequently stabilized and drifted higher throughout the rest of the day. All the major indices still finished in negative territory, but none by more than 0.5%. The S&P 500 slipped 0.1%, the Dow Jones Industrial Average 0.2%, and the Nasdaq Composite 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices lost 0.4% and 0.3% respectively. Each of the main stock market indexes closed near the upper quarter of its intraday range.

Total volume in the NYSE edged 3% lower. Turnover in the Nasdaq was on par with the previous day’s level. In yesterday’s commentary, we said, “As we approach Thursday’s Thanksgiving holiday, the pace of trading could remain lethargic.” Indeed, it was. With trading coming in well below average levels, it would not be very advantageous to make meaningful assessments of the market’s price to volume ratio recently. Overall, yesterday was a snoozer, despite the greater than usual amount of economic reports the market received yesterday.

On October 20 of this year, we closed out a rather profitable position in First Trust Natural Gas (FCG), an ETF comprised exclusively of individual stocks in the natural gas sector. That day, we sold FCG after it began to correct from its rally of the preceding two weeks. Specifically, we took profits on the trade after it fell through short-term support of its 20-period exponential moving average on the hourly chart. In hindsight, it turned out to be a wise move, as that day’s high was within a few cents of marking the high of the run. Since then, we’ve been keeping an eye on FCG, as it was showing nice relative strength before the correction began. Over the past week, FCG seems to have found support, and may be setting up for a possible re-entry within the next several days. Our annotated daily chart is shown below:

Over the past three days, FCG has been finding support just above its prior “swing lows” from late October and early November. If the lows of the past several days are not violated, a “higher low” will again be formed on the daily chart, confirming the uptrend of the past eight months remains intact. As for a re-entry on this pullback, we plan to jump back into FCG on a rally above the November 23 high. Waiting for such an entry will also force FCG to break out above its shorter-term downtrend line (the dashed blue line), as well as its 20-day EMA. As with our explanation of the potential pullback setup in IBB yesterday, it’s important to wait for the proper trigger price to buy into strength of the upside reversal.

While the S&P, Dow, and Nasdaq are consolidating near their recent 52-week highs, the small-cap Russell 2000 still appears to be in trouble. When the stock market’s most recent correction began in mid-October, small caps led the way lower, causing the Russell to break down to form a “lower low” below its early October 2009 low. Then, throughout the first half of this month, it recovered alongside of the major indices. We initiated a short ETF position in the Russell when the index began selling off, after bumping into resistance of its 50-day MA. But even though the technical setup was solid, we were forced to close the trade on November 16, when the Russell rallied back above its 50-day MA by a convincing margin. Now, one week later, that day’s move appears to have been a “shakeout” that forced the bears out of their positions. Take a look at the daily chart of the Russell 2000 below:

After we closed the Russell short position on November 16, the index held above its 50-day MA for two more days, but then fell back below it. On November 23, the Russell again attempted to reclaim its 50-day MA, but was unable to close above it. Then, yesterday, the Russell 2000 showed intraday relative weakness that caused the index to nearly close its large gap of November 23. When the index bounced after doing so, we sent an Intraday Trade Alert to subscribers, informing of our decision to re-enter the UltraShort Russell 2000 ProShares (TWM). With this trade, our stop is equivalent to the Russell 2000 rallying above its November 23 high because such a move would probably cause the index to hold its 50-day MA this time around. But as long as the index remains below resistance of its 50-day MA, odds favor a downward move in the near-term. A test of the early November lows is a realistic downside price target. Of course, we may need the rest of the major indices to remain in their current, short-term trading ranges in order for this to happen. That is why, as with our first entry, we bought only 50% of our normal share size. In order to mitigate risk during a low-volume environment, we are also utilizing reduced share size with all new trade entries right now.

Holiday publication schedule: This Thursday, November 26, the U.S. equities markets will be closed for the Thanksgiving holiday. As such, The Wagner Daily will not be published that day. The following day, the stock market is open, but will close at 1:00 pm ET. That day, we will be publishing an abbreviated version of The Wagner Daily that mainly provides any necessary updates and notes on open positions for the day. Regular publication will resume on Monday, November 30. Enjoy the time away from the markets with your friends and family.

Today’s Watchlist:

First Trust Natural Gas (FCG)

Shares = 300
Trigger = 16.70 (above the short-term downtrend line and 20-day EMA)
Stop = 15.58 (below the recent “swing lows”)
Target = new 52-week highs (will trail stop thereafter)
Dividend Date = n/a

Notes = See commentary above for explanation of this setup.

In addition to this FCG setup, other ETFs on our watchlist include: IBB and XHB (breakouts) and XLV, PPH (pullbacks). EWY and PGJ, recent buy candidates, have been temporarily removed from the watchlist, due to their “island gap” formations of November 24. If we enter any of these trades other than FCG, 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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  • Per Intraday Trade Alert, we bought the inversely correlated UltraShort Russell 2000 ProShares (TWM) yesterday. Explanation of the setup is in the commentary above.
  • 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