The Wagner Daily


The bulls and bears engaged in a tug-of-war yesterday, causing the major indices to indecisively yo-yo throughout the entire session. The bears gained the upper hand by the closing bell, but not convincingly so. The Nasdaq Composite edged 0.1% lower, as both the S&P 500 and Dow Jones Industrial Average slipped 0.2%. The small-cap Russell 2000 eked out a gain of 0.1%. The S&P Midcap 400 was lower by 0.1%. As with the previous day, the main stock market indexes closed slightly above the middle of their intraday ranges.

Total volume in the NYSE declined 19%, while volume in the Nasdaq came in 8% lighter than the previous day’s level. Although it’s positive lighter volume accompanied yesterday’s losses, monstrous amounts of snow in the Northeast may have prevented some traders and investors from participating in the markets. In the Nasdaq, turnover fell below its 50-day average level for the first time this year. Advancing/declining volume ratios in both exchanges were only fractionally negative. Overall, yesterday’s session was a non-committal wash.

The major indices have formed back-to-back “long-legged doji star” candlestick patterns over the past two days. The doji star forms when the opening and closing prices are nearly the same, near the middle of the day’s trading range. The formation of a single doji star indicates indecision and lack of direction, so the presence of two consecutive doji stars obviously points to even more confusion amongst stocks. Below, we’ve highlighted the two long-legged doji stars on the daily chart of Nasdaq 100 Index Tracking Stock (QQQQ):

In yesterday’s Wagner Daily, we said the intraday highs of February 9 were key levels of very short-term resistance for the major indices; a rally above those highs would correlate to a breakout above the downtrend lines that have been in place for nearly a month. Since none of the broad market indexes moved above their February 9 highs yesterday, traders should be monitoring those same pivotal levels going into today. A rally above the February 9 highs could help the main stock market indexes reclaim a direction for more than an hour or two, and resistance of the February 2 highs would be the next short-term target. Conversely, the intraday lows of the past two days have become just as important levels of support. If stocks break below their two-day lows, all bets are off on the long side of the market, as a test of the February 5 lows could quickly follow thereafter.

In our February 9 commentary, we pointed out a potential buy setup in iShares 20+ year Treasury Bond Fund (TLT). At the time, it was poised to break out above a short-term level of horizontal price resistance, which would have enabled TLT to cruise above its five-month downtrend line as well. However, we also said TLT was not buyable unless it rallied above resistance, over the $92.50 area. When the market opened that day, TLT moved to an intraday high of $92.22, then reversed to close lower. Yesterday, TLT sold off more sharply, and is now back to testing the lows of its February 3 “undercut.” But despite the negative price action of the past two days, it’s irrelevant to us because TLT never reached our trigger price above the $92.50 area. Patience to wait for the proper entry price, rather than “jumping the gun,” kept us out of the trade. For now, TLT has been removed from our watchlist, but we’ll consider it again if it gets back up to the vicinity of our original trigger price. An updated chart of the TLT price action is shown below:

When the broad market opened nearly flat, fell to the prior day’s lows, then bounced again, we made a judgment call to sell our recently entered position of S&P Midcap SPDR (MDY) yesterday. Although MDY missed our stop price during the morning pullback, we decided to sell for a small profit on the subsequent bounce because we didn’t like the way the broad market was acting. Nevertheless, if stocks break out above their two-day highs and bullish momentum comes back into the market, we have no problem re-entering MDY, or any other broad-based ETF. Even though we’d be getting in at a higher price than our original entry near the lows, the odds of profitability on the trade would also be increased if the broad market breaks out. However, we’re not excited about sitting on long positions unless the major indices break out above their short-term downtrend lines (the February 9 highs) and hold. If the two-day highs are broken and we get back on the long side of the market, we’ll promptly send an Intraday Trade Alert to subscribers with details. Otherwise, we’ll just focus on managing our UUP and SRS positions for maximum profitability. Be careful to avoid overtrading while the market is in “no man’s land.”

Today’s Watchlist:

As explained in the commentary above, we’re now waiting for the broad market to make up its mind by breaking out above the two-day highs, or falling below the two-day lows. If that happens, we may jump back into one of the broad market ETFs, and will send an Intraday Trade Alert if we enter anything new. But until we see a definitive move out of the range of the past few days, we’ll continue with a defensive stance, managing existing positions for maximum profitability.

TLT did not trigger for entry, and has been removed from the watchlist for now.

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 yesterday’s Intraday Trade Alert, we made a judgement call to sell MDY for a small profit. We didn’t like the way MDY fell below the prior afternoon’s consolidation to test the intraday low, so we sold on the first subsequent bounce. We may re-enter MDY, or a different broad-based ETF, if the broad market breaks out today. Be on the lookout for alerts if the market makes a decisive move today.
  • 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