The Wagner Daily


Yesterday’s action in the broad markets was very similar to last Friday.
If you recall, we discussed Friday’s action and the market internals in depth in
this newsletter on Tuesday. On Friday we had very strong internals but a
relatively weak advance in the markets on lower overall volume.
Yesterday’s action was rather similar. Although by the end of the day, the Dow
had tacked on 115.63 and the Nasdaq 33.67, a good piece of the move was in the
opening gap and the advance was one of fits and starts as the indices moved
upward very slowly and were rangebound for a good part of the trading day.
Similar to Friday, advancing volume led declining volume by huge margins.
Breadth, as measured by the total of up volume over the total amount of down
volume was over 4 to 1 positive in the NYSE and almost 5 to 1 positive in the
Nasdsaq. However, overall volume in the markets came in weak. When all was said
and done, the Dow and $SPX advanced on volume that was only 5% higher than
Tuesday (another advancing day of low volume). The Nasdaq overall volume
actually came in 17% lower than Tuesday. This divergence in the breadth
and overall volume is of note and is worth investigating deeper. When the
breadth is extremely positive it means lots more volume is flowing into up
stocks than down stocks. Mind you, however, this is only in relation to the
amount of down volume that particular day. If this up volume is not a very large
amount in relation to overall volume then it is relatively meaningless.
Increases in overall volume are caused by institutional players being at work.
When overall volume increases, it tells us that these larger players who can
really move the markets are out in force. So, with up volume much larger than
down volume but not strong in terms of overall volume, it tells us that the
advances are caused by “retail” or “dumb” money. Furthermore, these retail bulls
are using up all of their bullets and will more than likely have to reverse
their positions when institutional players come back into the market on down
days as they have been doing as of late.

Often in this forum, and in our
Intraday Real Time Room, we discuss sectors and markets that “lead”. Just like
the spot price of gold tends to lead mining stocks, certain sectors tend to lead
the market and certain markets tend to lead other markets. Historically, the
Nasdaq tends to lead the Dow and S&P. We often see moves in the tech related
sectors that spark rallies or declines in the broader market. This time around
has been no different. Below are monthly charts of the Nasdaq and Dow which go
back all the way to 1999.

A confirmed bull move or “rally” is only in effect when prior
swing highs are cleared to the upside. As you can see in the graphics above, the
bull run of 2003 had its genesis in January and February of that year when for
the first time in almost 3 full years a lower high was established that held and
was not later violated to the downside. Shortly afterwards, when the markets got
moving upwards, the Nasdaq made its move far ahead of the Dow. By the close of
trading on May 31st, 2003, the Nasdaq Composite had already cleared (and closed
above) the swing highs of December 2002. In contrast, the Dow stayed mired
underneath those swing highs some time longer and did not advance above those
highs until June and was not able to close above them until July.

established that the Nasdaq tends to lead the Dow and S&P 500, we are
currently witnessing the similar situation in reverse. If you look at dailies of
the Nasdaq Composite, you can clearly see that the Nasdaq has been in a
confirmed downtrend now since late January. In contrast, the S&P 500 made a
triple top during the exact same period that the Nasdaq was making two separate
lower highs, firmly establishing its downtrend. The charts below clearly
illustrate this technical event.

A final note about “leading” in the markets. The relatively
weak Nasdaq tends to be lead by the Philadelphia Semiconductor Index ($SOX), due
to the heavy weighting of semiconductor companies in the index. Check out
semiconductor stock charts over the last few weeks and continue to monitor them
closely in the near future. You can see that the chip index cannot seem to get
out of its own way lately. It is VERY relatively weak. Will history repeat
itself and have the Nasdaq lead the broad markets lower? Its impossible to say
“for sure”, but we know that technical analysis works only because in the
markets, history repeats itself each and every day. Fear and greed are
continually at work and leave their footprints on the charts every moment in
patterns which tend to duplicate themselves and repeat perpetually.

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:

    PPH long (full position, from Mar. 17) –
    long from 78.10, stop 76.50,
    target 80.00, unrealized points = (1.13), unrealized P/L = ($113)

Edited by Deron Wagner,
MTG Founder and