The Wagner Daily


As we often see on a quadruple witching options expiration day, last Friday’s trading session was choppy and erratic and resulted in the major indices closing near unchanged levels. After a brief opening selloff, the major indices attempted to rally during the late morning session, but ran into resistance near their respective highs of the previous day. The resistance caused a reversal and eventual break to new intraday lows in the broad market, but buyers stepped in during the final hour and caused the Dow Jones Industrial Average to close 0.3% higher, the S&P 500 index flat, and the Nasdaq Composite 0.3% lower. Does that pattern look familiar? Despite the juxtapositioning that occurred on options expiration day, the broad market maintained the same recent pattern of sector rotation out of the Nasdaq and into the Dow. However, if the broad market remains strong, it would not surprise us to begin seeing a gradual shift back into the Nadsaq and out of the Dow as investors realize that the Nasdaq has been “forgotten about.” Of course, if the broad market begins to head lower, all bets are off on the Nasdaq rotation.

Even though the major indices closed near the flat line on Friday, volume increased over the previous day by 9% in the Nasdaq and 4% in the NYSE. This would normally be bearish because it indicates an increase in trading turnover, but no corresponding price increases in the major indices. However, it is difficult to determine whether or not the increase in volume was attributed largely to associated activity with options expiration or whether it represented true institutional selling. Nevertheless, the fact that Friday’s volume increased over the previous day without any price movement should be perceived by bulls as a yellow caution flag going into this week.

We expect total market volume to gradually dwindle as we approach the Christmas Day holiday on Thursday. There are only two full days of trading this week because the U.S. stock markets will be closed all day on Thursday and will close early, at 1:00 pm EST on both Wednesday and Friday. Therefore, any detailed technical analysis we provide is likely to be skewed by a decrease in trading activity and lack of participation from many institutional players.

Looking at the major broad-market ETFs, the bottom line is that DIA (Dow Jones Industrial Average) and SPY (S&P 500 Index) are both trading at fresh 52-week highs, while QQQ (Nasdaq 100 Index) and ONEQ (Nasdaq Composite Index) both lag several percent behind. On the long side, the best risk has clearly been on the long side of the “old economy” sectors and stocks over the tech-heavy Nasdaq during the past two weeks. But, as we mentioned earlier, it would not surprise us to see the Dow and S&P lose their relative strength in the coming weeks because sector rotation cycles such as this one are generally short-lived. Despite their relative strength, it would be quite dangerous to blindly buy DIA or SPY at current levels. Although DIA and the Dow Jones are trading at their intra-year highs and have no overhead price resistance, they have rallied to the upper channel resistance of their daily uptrend lines. The daily chart of DIA below illustrates this:

As you can see from the chart above, DIA has become quite overextended at current levels and we anticipate a correction at least down to its 20-day MA over the next several weeks. Based on the upper channel resistance, DIA is probably a low-risk short here, although there is not yet confirmation that the index is ready to correct. Remember that an index can cling to its upper channel for days before correcting down to support of its lower channel. So, if you want to play it “relatively” safe, consider waiting for a break of Friday’s low to short DIA, which would decrease the risk versus shorting into strength without confirmation of a price reversal.

Today’s watch list:

TLT (iShares 20+ year T-bond)

Trigger = above 87.16 (above the 2-day high)
Target = 88.25 (resistance of the prior high from Sept. 30)
Stop = 86.60 (below support of hourly uptrend line)

Notes = TLT broke above resistance of its daily downtrend line last week and has consolidated for two days at the $87 area. We anticipate a surge up to its prior high if it can clear last week’s high. The 200-day MA may serve as resistance, so we may raise the stop tighter if TLT has a tough time getting above it. A full position of TLT is 200 shares, based on the MTG
Position Sizing Model

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:


Open Positions:



We were not in any positions on Friday and are flat coming into today. However, we are in several swing trades of individual stocks that were called in the Intraday Real Time Room on Friday.

Edited by
Deron Wagner,
Founder and President