Commentary:

All of the major indices closed well in the green on Friday. The market gapped up significantly, rallied throughout the session and finished near the highs of the day. The small-cap Russell 2000 led the charge posting a whopping 3.4% gain. The S&P MidCap 400 rallied 2.5%, while the Nasdaq finished up 2.3%. The S&P 500 and Dow Jones Industrial Average managed lesser, but still significant gains of 2.1% and 1.9% respectively. Although they were the biggest gainers on Friday, the S&P MidCap 400 and Russell are slightly lagging the other major indices. The MidCap 400 is trading just at its 3 month high, while the Russell 2000 is about 1.0% off its highs of the timeframe.

Although the broad market rallied sharply, the increase in volume was not as impressive, but still the internals were strong. Volume on the NYSE increased 11%, while the Nasdaq realized an increase of 3.4%. The advancing volume to declining volume ratio was quite impressive on both indices. Advancing volume overwhelmed declining volume by 9.5 to 1 on the NYSE and 7.2 to 1 on the Nasdaq. When combined, the market internals provide substantial evidence of institutional accumulation. This is further supported by the clear break above resistance on three of the five major indices.

On September 23rd, we issued an intraday alert to exit our SSG position, due to a sharp reversal of the Semiconductor Index ($SOX). Although SSG did not hit our stop, we exited the trade with a modest loss. This “judgment call”, demonstrates the importance of being proactive when market conditions change abruptly. The sudden reversal in the $SOX served as a red flag, and suggested that it was better to neutralize the position than to wait for it to hit our stop. The accompanying volume spike in the Semiconductor HOLDRs (SMH) further supported our decision. On Friday, the SMH rallied and closed well above its 200 day moving average, while the $SOX closed just below its 200 day moving average. Although the $SOX is coming into resistance at the 200 day MA and the downtrend line that began in April (see chart), a trend reversal may be at hand. This would not be a surprise, since all the major indices are at or above key resistance. Just as important, we are now out of position that would have hit our stop anyway, and better poised to evaluate the next move.

The Dow Jones U.S. Telecommunications Sector Index Fund (IYZ) is showing signs that it is prepared for another leg up. Since July it has been in a clear uptrend. On September 20th it broke out of a 5 day consolidation pattern. Since breaking out, it retested its former resistance, and is now consolidating near the highs of the breakout. A volume fueled rally above $21.85 would serve as a potential level for a buy entry. An alternative buy trigger would be a pullback into the 20-day exponential moving average.

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Today’s Watchlist:

JPMorgan Alerian MLP (AMJ)
Long

Shares = 300
Trigger = 33.40
Stop = 31.48
Target = (will send alert)
Dividend Date = n/a

Notes = AMJ has been trading in a tight range just above the 50-day moving average the past few weeks. A rally above the September 22 high is a valid entry point in anticipation of a resumption of the dominant trend.

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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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Notes:

• On the aggregate, the market looks poised to continue the recent rally. Key resistance levels have been breached, allowing the major indices to continue the bullish advance. Although we are cautious that a pullback may be near, it is not wise to fight the broad market.
• 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 support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader