The Wagner Daily


Although the Nasdaq continued showing relative strength to the S&P yesterday, the major indices all corrected slightly from the gains of the recent rally. Most sectors closed red on the day, led by weakness in the Pharmaceuticals (PPH) and Biotechs (BBH). The Home Builder sector ($DJUSHB) was very weak and closed 3.5% lower on the day after new mortgage applications showed another decline. The SOX (Semiconductor Index) actually closed 1.86% higher yesterday and firmly diverged from the weakness in the broad market. However, the weakness in the Biotechs caused the Nasdaq to only close flat on the day, despite the heavy weighting of the semis within the tech-heavy Nasdaq. The Dow and S&P 500 Index both showed relative weakness yesterday and each index closed approximately 0.5% lower. A small pocket of strength was found within the Russell 2000 Small Cap Index (IWM), which closed 0.33% higher on the day.

Volume picked up a little bit yesterday, but the S&P closed lower on the day. This means yesterday was technically a “distribution day” because volume increased over the previous day, but the S&P closed lower. This is normally a bearish sign because it indicates an increase in trading activity, but inability of the market to make headway. However, since yesterday’s volume was still well below its 50-day moving average (or its “normal” level), I don’t think we can read too much into the distribution day. The Nasdaq volume also increased over the previous day, but the index basically closed flat. Breadth was negative in the NYSE, which confirmed the weakness. Declining volume outpaced advancing volume by a margin of 1.35 to 1. Volume breadth was basically flat in the Nasdaq.

Did you happen to notice how well the S&P has been trending over the past six days? You probably would not have realized it if you are only looking at daily or weekly charts, but a glance at an hourly chart of the index shows a smoothly ascending uptrend, although not a very steep one. I have annotated an hourly chart of SPY (S&P 500 Index) to show you the uptrend channel of the past six days. Notice also how the 20-MA (the orange line) has been acting as support:

On the chart above, notice how yesterday’s opening gap put the S&P up against the upper channel of the hourly uptrend. This was one of the reasons we made the decision to short DIA in the pre-market yesterday. By shorting in the pre-market, we got short DIA at the high of the day. The risk/reward of shorting is very positive when an index is pressing against its upper channel of a six-day uptrend, especially while in the greater context of a trading range on the daily charts. Although the Dow (and DIA) has been showing relative strength lately, yesterday’s high failed to break above the prior high that was set on July 31. This means the Dow has made two lower highs since June. The S&P (and SPY) has done the same thing. On the daily chart of SPY below, notice how yesterday’s high stopped just shy of the upper channel of the daily downtrend that has begun:

QQQ (Nasdaq-100) is now trapped between resistance of its 20-day moving average above and support of its 50-day moving average below. Interestingly, the 20-day moving average acted as resistance to mark the high of QQQ yesterday, while the 50-day MA provided support and QQQ closed right on it. Take a look:

Will the 50-day MA act as support to push the Nasdaq higher or will the 20-day MA continue acting as resistance? I won’t speculate at this point, but consider that the 50-day MA is generally considered to be more powerful than the 20-day MA because of the longer time interval. Also remember that the weekly charts remain bullish. However, as you know well, volume remains light, so anything can happen. There are many mixed signals going into today and I have found the market is often choppy when that happens. So, as always, obey your stops and keep share size minimal until the summer doldrums end.

Today’s watch list:

OIH – Oil Services HOLDR

Trigger = above 59.00
Target = 60.25 (prior high from July 21)

Stop = 58.40 (below yesterday’s close)

Notes = OIH has been consolidating for the past several days, absorbing the gains from the recent rally (in which we participated). However, it is likely that OIH will make another leg higher if it breaks the highs of the past several days. We will buy on a break of yesterday’s high with a buy trigger of 59.00. Remember to follow $OXH.X, which is the index for OIH.

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:

    DIA short (1/4 position size from August 13) –
    shorted 93.50,
    covered 93.17, points = + 0.33, net P/L = + $16

    EWJ long (1/3 position size from July 15 – 17) –
    bought 7.81 (avg.),
    sold 7.73, points = (0.08), net P/L =

Open Positions:

    DIA short (1/4 position size from August 13) –
    shorted 93.50,
    new stop at 93.35, target of 91.30, unrealized points = + 0.47, unrealized P/L =
    + $23

    EWJ long (1/3 position size from July 15 – 17) –
    bought 7.81 (avg.),
    new stop at 7.55, target of 8.80, unrealized points = (0.10), unrealized P/L =


Per intraday e-mail alert, we sold another 1/3 of the EWJ long position yesterday, leaving us with only 1/3 position size remaining. We also shorted DIA per yesterday’s newsletter, then covered partial position for a profit and took the remaining 1/4 position overnight. Note the new stops on both EWJ and DIA. However, if DIA gaps up above our stop, we will use the MTG Opening Gap Rules, which basically means we will wait for a break of the 5-minute high before covering.

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