The Wagner Daily


A better-than-expected jobs report prompted stocks to open sharply higher last Friday, but continued intraday indecision and volatility caused the major indices to surrender a significant chunk of their opening gains. Less than half an hour after jumping approximately 2 percent higher out of the starting gate, the main stock market indexes swiftly nosedived, sending stocks all the way into negative territory by noon. The bulls returned in the afternoon, lifting the major indices to close well off their lows. In the dizzying session, tech stocks continued showing relative strength, enabling the Nasdaq Composite to finish 1.0% higher. However, the blue-chip Dow Jones Industrial Average advanced just 0.2%. The S&P 500 rose 0.6%. Given their recent trends of exhibiting relative weakness, small and mid-cap stocks turned in surprisingly impressive performances. The Russell 2000 and S&P Midcap 400 indices rallied 2.4% and 1.4% respectively. The Nasdaq settled at the middle of its intraday range, as the S&P and Dow finished a bit below the middle of their ranges.

Total volume in the NYSE surged 30%, while volume in the Nasdaq increased 14% above the previous day’s level. The higher volume gains in both exchanges caused both the S&P and Nasdaq to register a bullish “accumulation day.” However, analysis of the intraday volume patterns reveals increasing volume while stocks were selling off in the morning, and slightly declining volume during the afternoon recovery off the lows. Furthermore, the S&P 500 registered a bearish “distribution day” in the previous session. So, while last Friday’s “accumulation day” was positive, the wild intraday price action made the apparent presence of firm institutional buying a bit deceiving. Market internals were decent. In both exchanges, advancing volume exceeded declining volume by a margin of approximately 3 to 1.

In the December 2 issue of The Wagner Daily, we pointed out the relative strength and potential breakout in the Semiconductor HOLDR (SMH). Over the three sessions that followed, SMH cruised steadily higher, despite indecisive and whippy conditions in the broad market. Now that SMH has confirmed its breakout above a major level of horizontal price resistance, we’re stalking SMH for potential buy entry on a pullback to new support of its breakout level. The setup is shown on the daily chart of SMH below:

In our December 3 commentary, we highlighted iShares DJ Transportation Average (IYT) as another ETF that was positioned to break out above a key level of resistance. Zooming 2.1% higher last Friday, IYT showed nice relative strength to the broad market, as it broke out above the pivotal $73 area. Trading in IYT also spiked to about double its average daily level, hinting at buying amongst mutual funds, hedge funds, and other institutions. As such, IYT is another ETF we’ll be monitoring for potential buy entry over the next few days:

Last Friday, the U.S. dollar finally got some love, causing the U.S. Dollar Bull Index (UUP) to motor 2.0% higher. More importantly, UUP broke out above resistance of its 20-day exponential moving average. Volume in UUP was approximately three times its average daily level. Take a look:

From November 5 to 12, UUP showed some rather wild action on its daily chart. However, the crazy volatility was the result of a very unusual situation in which shares of UUP dried up, forcing the creator of the ETF to issue additional shares. Therefore, the price action of that one-week period should be discounted when analyzing the daily chart pattern of UUP. In doing so, one realizes last Friday’s breakout was a rally above a significant downtrend line. Since the direction of the broad market in recent weeks has been inversely correlated to the direction of UUP, one might consider burgeoning strength in UUP to be a possible negative for the short to intermediate-term direction of the major indices. But until the S&P 500 convincingly closes outside of its whippy, sideways range of recent weeks, it’s best to maintain smaller than usual share size with all new positions. Being hedged on both sides of the market is also not a bad idea.

Today’s Watchlist:

Semiconductor HOLDR (SMH)

Shares = 200
Trigger = pullback to $26.30 (retracement to support of breakout level)
Stop = $24.58 (below recent “swing low”)
Target = n/a (will trail stop)
Dividend Date = n/a (individual stocks pay dividends at various dates)

Notes = See commentary above for explanation of the setup.

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 sold half of our FCG position into strength of its opening bounce. An hour later, we made a decision to sell the rest of the position, as it was showing too much relative weakness. Proactively managing FCG enabled us to limit our loss to just $100.
  • 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