The Wagner Daily


Despite last Friday’s bullish reversal day, the broad market was unable to follow-through and provide further upside price action yesterday. Each of the major indices opened near Friday’s closing prices, drifted lower during the morning session, then remained in a tight, sideways range for the remainder of the day. It was quite a boring day because the S&P 500 futures traded in a mere 6-point range the entire day and actually oscillated within a miniscule 3-point range from 11:30 am EST until the close. Neither the S&P 500 Index, Dow Jones Industrials, nor the Nasdaq traded more than a few ticks above Friday’s high when trading began and each of these indices subsequently closed in the middle of the previous day’s range. The Dow closed right on its 20-day MA, but has tested it so many times that it seems likely to break support soon. Volume was relatively light yesterday; the NYSE volume was 8% lighter than the previous day and the Nasdaq’s volume was more than 14% lower. So, even though each of the major indices closed lower than the previous day, the declining volume prevented yesterday from becoming another distribution day.

It is important to note that the Nasdaq showed relative weakness to both the S&P 500 and Dow Jones Industrials yesterday. This became clear during the afternoon when the S&P and Dow both traded sideways to slightly higher while the Nasdaq simultaneously grinded lower through the close. More importantly, the Russell Small Cap Index (IWM) showed the most relative weakness because it maintained a steady downtrend from the time it opened until closed, which is why initiated a short position yesterday. Because the Nasdaq, and the Small Caps in particular, have been leading the recent rally, this is interpreted as yet another possible warning sign to bulls. When the leaders of a bull market begin to show weakness, it usually does not take long until the rest of the broad market follows. Obviously, we cannot assume too much with only one day of relative weakness, but I strongly recommend you keep a close eye on the small caps and the Nasdaq over the next several days for further clues. The two charts below illustrate yesterday’s divergence between DIA (Dow Jones Industrial Average) and IWM (Russell Small Cap Index):

Based on yesterday’s uneventful trading action, we still remain with a mostly neutral bias going into today. The fact that we did not see follow-through on Friday’s bullish reversal is, of course, bearish. However, remember that yesterday’s volume was also significantly lighter than the previous day. This tells us that the sellers may POSSIBLY be drying up, at least in the short-term. The FOMC is meeting today, but no change on interest rates is expected by Wall Street. Nevertheless, expect volume to remain light today, as the “big money” will most likely remain on the sidelines until after the interest rate decision is announced at 2:15 pm EST.
We continue to advise reduced share size and tight stops on all new positions until the market shows its hand and clearly makes its next move. Don’t force trades to happen if clear and low-risk setups are not out there! Doing so is one of the easiest ways to churn your account and slowly widdle away your capital. The market always rewards the most patient and disciplined traders and investors.

Today’s watch list:

QQQ – Nasdaq 100 Index Tracking Stock

Trigger = HALF below 33.34, add HALF below 33.20 (half below yesterday’s close, add on break of 20-day MA)
Target = 32.10 (support of 50-day MA)

Stop = 33.95 (above yesterday’s high)

Notes = Given yesterday’s sudden relative weakness in the Nasdaq, we suspect there will be follow-through today. If there is, we want to be short on a break of yesterday’s low (1/2 position), and will short another 1/2 position on a break of the 20-day MA at 33.20.

We also plan on shorting another 1/2 position of IWM if it breaks below 99.90, as an addition to the existing half position we shorted yesterday at 101.46.

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:

    IWM short (HALF position from Sept. 15) –
    shorted 101.46, stop 102.40, ADD BELOW 99.90, target 98.40, unrealized points = + 0.30, unrealized P/L = + $15


Per the intraday e-mail alert we sent yesterday, we shorted 1/2 position of IWM when it traded below the 101.50 sell stop. The DIA sell stop never triggered because the index showed relative strength. Per the note above, we plan on shorting another 1/2 position if IWM breaks below 99.90.

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