The Wagner Daily


The recent pattern of indecision and intraday reversals continued in the broad market yesterday as the charts of the major indices resembled a roller coaster. The broad market began the day with an opening gap up that came on the heels of a heavy volume selloff the previous day. From that point, the major indices slowly crawled higher through the first two hours of trading, but reversed and resumed the prior day’s downtrend during the late morning session. The downtrend continued until approximately 2:30 pm EST, at which point buyers stepped in an rallied the indices back to the prior intraday highs during the final minutes of trading. Here is a quick visual that illustrates the roller-coaster type action in SPY (S&P 500 Index) yesterday:

The Nasdaq was clearly the weakest of the major indices yesterday because it barely rallied in the morning and broke well below the previous day’s low during the mid-day selloff. The Dow Jones Industrial Average, on the other hand, showed relative strength because it actually held the morning lows when it sold off during the mid-afternoon and rallied the most into the close. Interestingly, the Nasdaq Composite found support exactly at its 20-day moving average yesterday, which marked the reversal point for that index. Below are daily charts of both the Nasdaq Composite and the Dow Jones Industrial Average. Notice how much stronger the Dow was because it closed near the highs of the previous day, as opposed to the Nasdaq which sold off all the way down to its 20-day moving average and closed in the lower half of the previous day’s range:

Based on the charts above, it appears that being long DIA (Dow Jones Industrial Average) is a better bet than being long ONEQ (Nasdaq Composite). While the Dow appears that it may break out to a new high within the next day or two, the Nasdaq now has to contend with an abundance of overhead resistance that was created during the weakness of the past two days. Below is an hourly chart of the Nasdaq Composite that illustrates the resistance that has been created at the 1970 level in the Nasdaq:

Although neither hit our price target yet, we covered partial share size of both the RTH and HHH shorts for a combined profit of just under 5 points. Although we still anticipate lower prices in these positions, we made a decision to take some profits off the table due to the broad market’s recent pattern of reversing intraday. We did not want to let a large gain slip away if the market reversed in the afternoon, which is exactly what it did. Details on the shares we covered and the remaining open positions are listed in the Daily Reality Report below.

Like we have been saying all week and as you can see from the first chart of SPY above, the broad market remains extremely unpredictable from one hour to the next. As such, we continue to recommend you focus on trading individual sectors with relative strength or weakness to the broad market, as opposed to actually trading the broad market ETFs. If, however, you insist on trading SPY, DIA, or QQQ, it looks like DIA has the best potential for an upside breakout. The Nasdaq, conversely, has the most bearish looking chart of the major indices. Other than that, you’re on your own! We are confident that one side will eventually win in the market’s tug-of-war, but we’ll wait it out until then. Remember to TRADE WHAT YOU SEE, NOT WHAT YOU THINK.

Today’s watch list:

OIH – Oil Services HOLDR

Trigger = above 58.03
(above yesterday’s high and the 200-day MA)
Target = 60.40 (retest of prior high from October 8)
Stop =
56.80 (below the breakout level and yesterday’s close)

Notes = As you can see from the chart above, OIH had a high volume breakout yesterday that pushed it above its primary downtrend line (in red) that has been in place since mid-June. It also broke above its 50-day MA yesterday. The black circle illustrates the break of the 50-day MA and downtrend line. Although not shown on the chart above, volume also spiked sharply higher in OIH yesterday.

If OIH breaks above yesterday’s high, we expect it to test the prior “swing high” from October 8, just over $60. There is a 200-day MA overhead, so we will only look to buy OIH on a break above this 200-MA. In addition, a break over the $58 level will put OIH above both its 20 and 50-WEEK moving averages on the weekly chart.

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 (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 Model

Closed Positions:

    RTH short (3/4 position size, from Dec. 1) –
    shorted 92.72, covered 89.75 (avg.), points = + 2.97, net P/L = + $221

    HHH short (1/2 position size, from Dec. 3) –
    shorted 47.03, covered 45.65, points = + 1.38, net P/L = + $136

Open Positions:

    RTH short (1/4 position size, from Dec. 1) –
    shorted 92.72, new stop 92.50, target 85.50, unrealized points = + 2.58, unrealized P/L = + $65

    HHH short (1/2 position size, from Dec. 3) –
    shorted 47.03, new stop at 47.10, target 44.95, unrealized points = + 0.59, unrealized P/L = + $59


Per intraday e-mail alerts, we covered half position of RTH on its test of support at the $90 area yesterday morning. We then covered another 1/4 position of RTH and half the position in HHH near the lows of the day, just before the broad market reversed. Therefore, we now have only small open position size in both RTH (1/4 position remaining) and HHH (1/2 position remaining). New stops are listed above.

Edited by Deron Wagner,
MTG Founder and President