The Wagner Daily


A negative knee-jerk reaction to yesterday morning’s employment data caused stocks to slide lower on the open, but the resilient bulls reversed the initial weakness shortly thereafter. The S&P 500 and Dow Jones Industrial Average ground higher throughout the day before finishing with gains of 0.4% and 0.3% respectively. Continued weakness in large-cap tech stocks weighed on the Nasdaq Composite, which closed lower by less than 0.1%. All the main stock market indexes finished near their intraday highs.

Turnover in the NYSE was 7% greater than the previous day’s level, while volume in the Nasdaq eased 4%. The higher volume gains in the S&P and Dow were positive, as it hinted at institutional accumulation. However, the continued relative weakness of the Nasdaq was a bit concerning. Google (GOOG), for example, fell 2.3%. The internet giant has shed 4.8% in the past two days. Nevertheless, just as it appears a main stock market index may be running out of steam, industry sector rotation keeps the broad-based rally alive.

In yesterday’s commentary, we pointed out the pullback setup in PowerShares U.S. Dollar Bull Index (UUP). After pulling back to close at support of its 20-day exponential moving average (EMA) the previous day, UUP followed through to the upside with a gap above its three-day high. Now, drilling down to the shorter-term hourly chart, one sees that a rally above yesterday’s high should confirm the resumption of the developing uptrend. As such, we plan to buy UUP today, if it moves above yesterday’s high. The daily chart below shows the nice bounce off the 20-day EMA, while the hourly chart that follows marks the short-term downtrend line we’re monitoring:

In the January 4 issue of The Wagner Daily, we pointed out the bullish setup in iShares South Korea Index (EWY), which was poised for a breakout above a key area of horizontal price resistance. As anticipated, EWY subsequently moved above that resistance level, zooming to a new 52-week high. However, because its opening gap on the breakout day was so large, the reward/risk of an intraday trade entry was lessened, and we decided to pass on entering the trade. Since then, EWY has pulled back to near the low of its January 4 breakout bar, and we’re again monitoring its price action for potential buy entry. As shown on the daily chart below, the breakout level should now act as support, and presents a low-risk entry point:

Another international ETF we’re stalking for possible buy entry is iShares Australia Index (EWA). On the daily chart below, notice EWA has been consolidating in a range for the past several months, and is now poised to resume its dominant uptrend that began with the March 2009 lows. A rally above its January 6 high (above $24) will represent a breakout above the shorter-term “dirty” downtrend line of EWA. A “dirty” trendline occurs when the price action of just one or two days goes beyond the boundary of an otherwise perfect trendline. This is illustrated on the daily chart below:

Despite four straight days of gains in the S&P 500, the broad market has been largely apathetic since the new year began. The Nasdaq has been showing relative weakness, and the majority of the gains in the rest of the major indices were merely the result of the first hour of trading on the first business day of 2010. This week’s price to volume patterns in the broad market have also given mixed signals. Overall, the uptrend clearly continues to favor the bulls, and there’s simply no reason to fight it. Still, most of the strongest ETFs have become a bit extended, and need to pull back to near-term support levels in order to present attractive reward-risk ratios for new long entry. When we see these ETFs with the most relative strength start pulling back, we’ll be sure to point out the most ideal trade setups to subscribers. In the meantime, we remain positioned with S&P Select Energy SPDR (XLE), one of the strongest sector ETFs this week.

Today’s Watchlist:

PowerShares U.S. Dollar Bull Index (UUP)

Shares = 800
Trigger = 23.06 (above yesterday’s high)
Stop = 22.53 (below the 50-day MA)
Target = 24.95 (61.8% Fibonacci retracement from the March 2009 high to December 2009 low)
Dividend Date = n/a

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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  • SMH hit our new stop yesterday, which we tightened due to sudden relative weakness in the Nasdaq. This still enabled us to lock in a small gain on the trade. No changes to the XLE position, which continues to act well.
  • 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