The Wagner Daily


The Nasdaq Composite continued its recent trend of relative weakness to both the S&P 500 and Dow Jones Industrial Average on Friday, as the index followed up the previous day’s loss with another 1.0% drop. Both the S&P and Dow also closed lower on Friday, but each index lost only 0.5%. The positive about Friday’s weak performance is that, like the previous day, the losses occurred on volume that was lower than the previous day. Volume in the NYSE dropped 9.6%, while volume in the Nasdaq was 6.8% lighter. Since last Wednesday, the formerly bearish volume pattern of higher volume down days and lighter volume up days has reversed, at least in the short-term. Wednesday’s rally came on higher volume, while Thursday and Friday’s losses both came on lighter volume. Nevertheless, each of the indices completely wiped out Wednesday’s gains and closed at or near their lows for the week.

The Nasdaq had its fourth consecutive losing week, although both the S&P and Dow diverged and closed a few points higher than the previous week. In the February 13 Wagner Daily, we mentioned that the Nasdaq’s losses on February 12 caused the index to give back all of its gains from last Wednesday’s “Greenspan rally,” which was bearish. The index then continued to show weakness by closing at a new low of the week on Friday. More importantly, notice how the Nasdaq was unable to rally back above resistance of its 20-day moving average, which the index broke below on January 28. The daily chart of the Nasdaq Composite below illustrates how the 20-day MA is now acting as resistance, while the 50-day MA below has acted as support:

On the chart above, notice how the 50-day moving average perfectly converges with the primary uptrend line from the low of March 2003 (circled in orange), which is when the current uptrend in the Nasdaq began. Therefore, the 2,032 price level is an important level to watch because a confirmed weekly close below that level would represent a break of both the 50-day moving average and the primary uptrend line which has been intact for nearly a year. If you’re long any Nasdaq-related stocks or ETFs, be sure to honor your stops in the event this level is broken on the Nasdaq because the index could be in for an intermediate-term correction if that occurs. But, for now, the support remains intact. On the upside, the 20-day moving average has now become the obvious area of resistance at the 2,085 to 2,090 area. More importantly, resistance of the 200-WEEK moving average (not illustrated) is at 2,083. Be aware that trading conditions are likely to be choppy as long as the Nasdaq remains in this narrow channel between key support and resistance. If you are interestered in trading the Nasdaq Composite, remember that ONEQ is the ETF that tracks the Nasdaq Composite Index, while QQQ is the ETF that tracks the more narrow Nasdaq 100 Index.

Last Friday’s losses in the S&P 500 and Dow Jones caused both indices to give back all of Wednesday’s gains from the “Greenspan rally,” which the Nasdaq had already done the previous day. But, the more significant thing that occurred was the formation of a possible double top on both the S&P 500 and Dow Jones daily charts. Below is a daily chart of the S&P 500 Index, which illustrates the potential double top that is forming just below the 1,160 level (which is the 116.00 area on SPY):

If you look at a daily chart of the Dow (and DIA), you will see that it looks very similar to the chart of the S&P 500 above. We call this chart formation a possible double top, simply because it is too early to have enough price confirmation. However, confirmation of the double top would likely occur first if the index breaks back below its 20-day moving average at 1,140, and then if it breaks below its prior “swing” low of 1,124, which was set on February 5. Interestingly, support of the 200-WEEK moving average also remains at 1,122. If, on the other hand, the S&P reverses and breaks back above last week’s high, all bets on a “double top” are off! As mentioned in the February 13 Wagner Daily, remember also that the 1,160 level on the S&P 500 Index perfectly marks the 50% retracement from the March 2000 high down to the October 2002 low.

Today’s watch list:

There are no new plays for today, as we want to see whether or not there is follow through on last Friday’s closing weakness before initiating new ETF swing trade entries. If, however, we enter any new ETF swing trades today, an e-mail alert will be sent to subscribers (as always).

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:

    TTH long (from Feb. 13) –
    bought 29.05, sold 28.89 (avg.), points = (0.16), net P/L = ($19)

Open Positions:

    IWM short (from Feb. 12) –
    shorted 118.46, new stop 118.15, target 113.80, unrealized points = + 1.81, unrealized P/L = + $181


We bought TTH per intraday e-mail alert to subscribers on Friday, but quickly closed the position with a small loss (prior to its stop) upon noting the broad market’s weakness. We also lowered the stop below breakeven on IWM, thereby removing the risk from the trade, while allowing the profits to ride.

Edited by
Deron Wagner,
Founder and President