The Wagner Daily


The good news for the bulls is that all three of the major indices closed higher yesterday, but the bad news is that volume continued to decline. As expected, we saw sector rotation out of the Dow and S&P and back into the Nasdaq yesterday, particularly in the tech-related sectors. QQQ (Nasdaq 100 Index) closed more than 1% higher on the day, while SPY (S&P 500 Index) and DIA (Dow Jones Industrials) both lagged and closed approximately 0.30% higher. This, of course, is the exact opposite type of divergence we saw during most of last week in which the Dow and S&P held up well, but the Nasdaq did not. Strong sectors yesterday included: Semiconductors, Software, Networkers, Internets, and Biotechs. Financials and Drugs were among the weaker sectors. Notice how SMH (Semiconductor HOLDR) perfectly bounced off support of its 50-day moving average yesterday:

As I mentioned in yesterday’s newsletter, last Friday’s volume in the NYSE was the lightest we had seen in about six months. However, yesterday’s volume was even lower! Total market volume in the NYSE yesterday was only 1.01 billion shares, which was about 7% lower than the prior day, which was already very light. Volume in the Nasdaq was also about the same percentage lower. Breadth improved dramatically in the Nasdaq as advancing volume beat declining volume by nearly 4 to 1. On the previous day, the declining volume actually beat advancing volume by 1.5 to 1. Unfortunately, we cannot accurately read too much into the Nasdaq’s improvement in breadth because volume was too light to confirm the bounce. Is this light volume telling us something is wrong with the market? Not really. It’s just telling us that the summer doldrums are in full swing! If you have not already done so, consider taking an impromptu holiday/vacation this month. Chances are good that you won’t miss much in the markets.

Going into today, look for another day of follow-through to the upside in the Nasdaq, although we would not expect too much. If you have a profitable trade, keep tight trailing stops or sell into strength. We could begin to see some weakness in the Dow today and will be watching DIA for a possible short. Unfortunately, there really isn’t much more to say about what to look for because we expect much of the same lackluster, light-volume action we have been seeing recently. We remain stuck in a light-volume holding pattern. So, we will just wait it out and continue focusing on our top priority of capital preservation. Being on the sidelines is boring, but it allows you to preserve capital so you are ready to strike aggressively when conditions improve.

Today’s watch list:

DIA – DIAMONDS (Dow Jones Industrial Avg. Tracking Stock

Trigger = below 92.14
(below the high of Aug. 8)
Target = 91.10 (61.8% Fibo retracement of the recent rally)

Stop = 92.68 (above yesterday’s high)

Notes = Expecting sector rotation back out of the Dow and into the Nasdaq. As such, we expect to see relative weakness in the Dow over the next few days.

Daily Reality Report:

Below is Morpheus Trading Group’s daily
performance report of closed trades and an update on all open positions from
The Wagner Daily (ETF Intraday Real-Time Room trades are reported
separately in The Wagner Weekly). Net P/L figures are based on the
quantity of shares represented in the MTG Position Sizing

Closed Positions:


Open Positions:

    EWJ long (full position from July 15 – 17) –
    bought 7.81 (avg.),
    stop at 7.34, target of 8.80, unrealized points = (0.21), unrealized P/L =


EWJ bounced nicely yesterday on the heels of some positive economic data out of Japan. Technically, EWJ is back up to test resistance of its 20-day moving average, so we will watch closely from here to see if it can break the prior highs around 7.80. If not, we may sell into this bounce within the next several days. As always, we will send an e-mail alert if we do.

There were no new Wagner Daily plays from yesterday, although we shorted TLT in the ETF Real-Time Room and took a half position overnight.

Click here for
a detailed explanation of how daily trade performance is calculated.

Click here for a detailed
cumulative report of MTG’s trading performance (updated weekly)

Glossary and Notes:

Remember that opening gaps that cause stocks
to trigger immediately on the open carry a higher degree of risk because the
gaps (both up and down) often do not hold. Use caution if trading stocks with
large opening gaps.

Trigger = Exact price that stock must trade
through before I will enter the trade. If a long position, I will only enter the
stock if it trades at the trigger price or higher. For a short position, I will
only enter the stock if it trades at the trigger price or lower. It is really
important to only enter the position if the trigger price is hit, otherwise the
trade becomes riskier.

Target = The anticipated price I am
expecting the stock to go to. However, this does not mean that I will
always hold the stock to that price. If conditions warrant, I will sometimes
take profits before that price, in which case I will notify you of the

Stop = The price at which I will have a physical stop
market order set. As a position becomes profitable, this stop price will often
be adjusted to lock in profits. Again, you will always be notified of such
changes in the next daily report or intraday if you subscribe to intraday

SOH = Sit On Hands (Don’t Make Trades)

Closed P&L
under Deron’s Report Card is based on the actual price I closed my trade at, not
just the theoretical target or stop price listed for each stock. Open P&L is
based on the closing prices of the most recent trading day.

otherwise noted, average holding time is 1 to 3 days once a position is
triggered. Updates on open positions are provided daily.

Yours in success,

Deron M. Wagner