The Wagner Daily


Fueled by a better than expected Jobless report, the broad market clearly broke out to new highs yesterday, causing each of the major indices to actually close at new 52-week highs. Each of the major indices were strong, closing significantly higher than the previous day. Volume was also strong, 13% higher than the previous day in the NYSE and 5% higher in the Nasdaq. Since the market closed higher and on higher volume, yesterday was technically an “accumulation day,” which is typically marked by an increase in institutional buying. This corresponding increase in volume was important because it was the first “accumulation day” we have seen across the board in quite a while and shows us that bullish volume patterns may be returning to the markets. The break out to new highs and on higher volume confirms the legitimacy of the post-FOMC rally on Tuesday afternoon.

One of the laws of physics dictates that water running down a hill will always follow the path of least resistance. If there is a rock in the middle of its path, water will simply flow around it and resume its downhill trend. This is similar to how stock markets act because they too will always follow the path of least resistance. If you ever stopped to think about it, price resistance in a market is created simply by other investors and traders who are attempting to sell while a market is simultaneously attempting to rally. The more sellers that are present (resistance), the more buyers (volume) that are required in order for the market to resume its upward trend despite the sellers. However, whenever there is a lack of sellers (resistance), it requires less buyers in order to move the market higher. The sellers (resistance) is usually created by investors and traders who have recently bought a stock at a higher price and are simply attempting to “break even” on the trade. Therefore, when that stock rallies back up to the price at which people originally bought the stock, perhaps several months ago, resistance is created from the sell orders of those who just want to “break even.” But, what happens when an index or stock is trading at a new high that has not been seen in more than a year? Resistance is usually minimal because anybody who wanted to bail out has already done so and the net bias shifts heavily to buyers. This is why indexes and stocks that set new 52-week highs will usually continue to go higher, even without a strong impetus to do so.

Why am I giving such a detailed explanation of what creates resistance? I am doing so because a thorough understanding in what enables markets to rally is important in understanding the recent action of the broad market. Though we have seen several mixed bullish and bearish signals in the market lately, the major indices broke out and once again closed at new 52-week highs. It’s easy to get caught up in attempting to justify what causes this to happen or whether it makes sense, but the reality is really simple to explain — indexes trading near 52-week highs simply lack resistance and therefore can easily go higher. I often hear fellow professional traders discussing the merits of whether or not the markets can justify how much they have rallied during the past year. Based on monthly charts of the major indices, I personally think we are nearing an intermediate-term top. But, my opinion does not matter because a market will continue to go higher as long as buyers outnumber sellers. There is no need to make it any more complicated than that! This is also why we continually pay so much attention to volume and price relationships because this ratio will often give us clues to what is really happening before it actually happens. This has also enabled us to spot several major market bottoms and tops over the past several years, usually several weeks before the masses.

Going into today, there really isn’t any significant price resistance due to the multitude of new 52-week highs that were set yesterday. Therefore, our bias remains on the positive side, but caution is still in order due to the major Fibonacci levels we are approaching on the longer term weekly and monthly charts. Go ahead and ride out any long positions with trailing stops because the market has given us no solid technical reasons not to do so. If you are not already long, use the pullbacks as buying opportunities. However, just be alert because this is the time of year when the market often reverses when people least expect it. We will do our job by continuing to closely monitor market internals, with a focus on volume, and will continue to share our honest and unbiased opinions on the market as we see them.

The most important thing to remember is that today is not only an Options Expiration day, but it is also a quadruple witching day. Trading on triple witching days (now quadruple witching since the inception of Single Stock Futures) is usually quite erratic and volatile, especially in the afternoon. Therefore, we are not listing any new plays today and prefer to wait until Monday to re-assess.

Today’s watch list:

Due to Quadruple Witching Options Expiration day, we are not listing any new plays for today. We will re-assess and enter new plays on Monday.

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:

    RTH short (from Sept. 18) –
    shorted 87.85, covered 88.70, net points = (0.85), net P/L = ($87)

Open Positions:

    TLT long (from Sept. 18) –
    bought 85.60, stop at 84.80, unrealized points = (0.05), unrealized P/L = ($10)


Both plays triggered yesterday, but RTH was stopped out later in the day. We are still long TLT.

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