The Wagner Daily


The major indices began the day with a flat opening and spent most of the day trading sideways in a tight range, near the previous day’s lows. However, a broad-based rally kicked in 90 minutes before the close and pushed the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite each to new multi-year highs. While the rally itself was not too surprising, the interesting thing is that yesterday’s volume declined versus the prevoius day, which closed lower. Volume in the NYSE was only 5% lower, but volume in the Nasdaq was 13% lower than the previous day. When you have such a broad-based and strong rally, you normally see it backed by strong institutional buying, but that was not the case yesterday. It seemed the rally was more the result of a lack of sellers rather than a huge buying interest. Interestingly, yesterday’s volume of 1.95 billion shares was the lightest volume day in the Nasdaq since January 2. Nevertheless, the broad market continued its advance without more than one day of price correction. Gains were relatively in sync among the major indices and ranged from a gain of 1.2% for the S&P 500 to 1.4% for the Nasdaq Composite. The Russell 2000 Small Cap Index lagged behind and only gained 0.6%.

Yesterday’s closing price for the S&P 500 was the highest since March 2002, and was the highest close for both the Dow Jones and Nasdaq since June 2001. This is great if you are a long-term investor because the market has certainly been defying gravity and ignoring the most bearish pundits. However, if you are a short-term swing trader who looks for trade setups that offer high potential profits with low initial risk, you are probably finding this task a bit challenging. The ETFs have been in the habit of reversing in the middle of the day, despite good technical patterns that may indicate otherwise. This is ideal for intraday traders who are in and out of the market within a few minutes or hours, but makes it a bit challenging for multi-day “swing” traders who attempt to ride trends. When going long, we like to buy stocks and ETFs that are breaking out of extended consolidation patterns, so that a base of support is formed below. However, many of the ETFs and stocks are now rallying to new highs without any base of support below, which makes it a bit risky to enter new long positions. Conversely, selling short is not working right now, as evidenced by the stop-outs we have recently taken in several ETFs. There are certainly a few good trade setups out there, but you have to search more carefully and increase your level of selectiveness before entering new positions. For example, we netted a 15% gain in a swing trade of NENG (long) in the Intraday Real-Time Room yesterday, but it required hours of scanning to find that low risk play. We have nixed many other trade setups simply because the risk/reward potential has not been positive.

Because each of the major indices closed at new 52-week highs yesterday, there is technically not any overhead resistance for us to discuss today. Continue watching the weekly charts and 200-week moving averages that we showed you in yesterday’s newsletter. The most important thing I would point out is to keep a close eye on volume because the volume in last Friday’s selloff was heavier than the volume in yesterday’s rally. If you enter new long positions, consider reducing your share size to minimize risk and keep trailing tight stops on open positions. As for shorts, you probably know how difficult it has been to simply maintain a position for more than a few hours. While we may miss a bit of the current move higher, we prefer to tread lightly for the benefit of reducing our risk. Let volume be your guide.

Today’s watch list:

(There are no new trade setups for today.)

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:

    IWM short (from Jan. 21) –
    shorted 118.73, stop 119.85 (hit stop after hours – see note below), new target 114.50, unrealized points = (1.17), unrealized P/L = ($117)

    DIA short (full position, from Jan. 6 and Jan. 9) –
    shorted 105.27 (avg.), stop 107.55, target 100.50, unrealized points = (1.91), unrealized P/L = ($382)


WMH never triggered. IWM traded above our stop price after the market’s official close at 4 pm, but was not stopped out during market hours, so we remain short. We will maintain yesterday’s same stop, except that we will increase the stop to 10 cents over the 20-minute opening high in the even of a gap up in IWM. We will send an e-mail alert when/if IWM hits our stop in the morning. We also remain short DIA with the same stop.

Edited by
Deron Wagner,
Founder and President