The Wagner Daily


The strong divergence between the “old economy” Dow stocks and the growth-oriented Nasdaq continued yesterday as the Dow Jones Industrial Average spent the whole day trending higher, while the Nasdaq Composite spent most of the day trending lower. However, a buy program that came during the last 90 minutes of the day caused the Nasdaq to reverse from its intraday low up to its high of the day. This buy program, of course, propelled the Dow much higher because indexes and stocks with relative strength are always the first ones to surge higher when the rest of the market does. Below are 15-minute intraday charts of both the Dow Jones Industrial Average and the Nasdaq Composite. Notice the divergence the entire day:

As you can see, the Dow was clearly stronger than the Nasdaq yesterday, and it has been that way for the past week. If not for the recent strength in the Dow, the Nasdaq Composite would probably be trading below its 50-day moving average by now (which it came within 4 points of yesterday). If you look at daily charts of both the Dow and Nasdaq, the divergence over the past week becomes quite clear. The Dow Jones Indu. Avg. was the only major indice to close at a new 52-week high yesterday and will probably test the big psychological resistance level of 10,000 today. If the Dow’s test of resistance reacts similar to last week’s test of Nasdaq 2000, we would expect a sharp reversal lower after it touches 10,000. But, as is always the case with trading, past performance does not necessarily indicate future results. Just wanted you to be aware that the market will probably react sharply one way or the other after the Dow touches 10,000 because it is such an important number in everyone’s minds. As we have discussed in the past, large round numbers (such as 10,000) are always psychological support/resistance levels, which makes the respective support/resistance levels become a self-fulfilling prophecy. Traders who wish to participate in trading the Dow are reminded they can trade DIA, which is the ETF that tracks the Dow Jones Industrial Average.

The S&P 500 Index was stronger than the Nasdaq yesterday, but a bit weaker than the Dow. It traded sideways for most of the day, until the 2:30 pm EST buy program propelled the index to new intraday highs, but NOT to a new 52-week high. The 1070 level that acted as resistance last week once again provided price resistance yesterday. The hourly chart of the S&P 500 below illustrates how that level has served as the basis for many bearish reversals over the past week:

For the S&P 500, the key “pivot point” to watch going into today is that 1070 area. If the index can rally above the 1070 and convincingly stay there, the 1070 level will become the new support rather than resistance. However, until that happens, we have to assume that the 1070 level will continue to provide resistance as it has done for the past week.

Between all the divergences yesterday, the Dow Jones Indu. Avg. closed with a 1.0% gain, while both the S&P 500 and Nasdaq Composite closed approx. 0.65% higher. Volume came in several percent lighter than the previous day, which was already light to begin with, but volume was stronger during the afternoon rally than during the first half of the day. This, of course, is bullish because it indicates yesterday afternoon’s buy program occurred on higher volume than the weakness in the first half of the day.

Of more importance than any technical level today is the FOMC meeting with a decision on interest rates due at 2:15 pm EST. Virtually no economists on Wall Street expect any change in rates, but, as always, it will be the verbage about the Feds’ future intentions that will have the potential to affect the market. Our advice is to remain mostly on the sidelines after 2:00 pm because the market is usually quite erratic and volatile after FOMC announcements, and it has already been erratic to begin with. Once the market has a chance to digest the Feds’ comments today, we could probably expect some type of trend to develop and a break out of the choppy conditions we have been seeing for the past few weeks. Until then, patience is key.

Today’s watch list:

Due to the FOMC meeting today, there are no new trade setups. The market is generally quite volatile after the 2:15 announcements on interest rates, and we don’t want to enter a new position and get whipped out of it only a few hours later. We will re-assess new trade entries tomorrow, after the market has had a chance to digest the Feds’ comments.

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 (1/4 position size, from Dec. 1) –
    shorted 92.72, covered 89.30, points = + 3.42, net P/L = + $84

    SPY short (1/2 position size, from Dec. 5) –
    shorted 106.81, covered 107.42, points = (0.61), net P/L = ($64)

Open Positions:

    OIH long (full position, from Dec. 5) –
    bought 58.05, new stop 57.50, target 60.40, unrealized points = + 1.34, unrealized P/L = + $134

    HHH short (1/2 position size, from Dec. 3) –
    shorted 47.03, new stop at 46.25, target 44.95, unrealized points = + 1.03, unrealized P/L = + $103


RTH hit our trailing stop yesterday, locking in a gain of + 3.42 points. We also lowered the stop on the remaining shares of HHH (per above) and raised the stop slightly on OIH, which has given us an unrealized gain of more than a point so far. We also were stopped out of the SPY short (1/2 position) that we entered last Friday per an intraday e-mail alert. We failed to list SPY as an open position in yesterday’s Wagner Daily due to an oversight, but honored the stop posted in Friday’s initial e-mail alert.

Edited by Deron Wagner,
MTG Founder and President