The Wagner Daily


Crazy, choppy, erratic. Not enough adjectives out there to describe the
mad chop that was the market action yesterday. A slight gap down on some softer
than expected economic numbers and a weak dollar, set the tone for what appeared
to be a nice, mellow down trending day. That was precisely the action that we
had until 12:30 when reports came over the wires that al-Qaeda’s second in
command, Ayman al-Zawahri was surrounded by Pakistani forces. The futures
markets responded immediately, sending the major averages back up over their
respective opens immediately. After a lengthy pullback over the doldrums which
retraced 50% of the news-driven move, the markets resumed strength again and
rallied to close back up at the opens. When all the smoke cleared after 4pm, the
action was essentially a non-event as the Dow, S&P 500, and Nasdaq Composite
all ended up less than 1 percent different from Wednesday’s close. Market
internals closed weakly in contrast to the markets closing at the highs. Breadth
as measured by up volume versus down volume closed very negatively, with the
NYSE coming in 1.32 to 1 negative and the Nasdaq 2.48 to 1 negative. The soft
internals confirm that the sporadic buying was more of a very short term
speculative nature. Overall volume was again weak. The NYSE traded 17% less than
the prior day, while the Nasdaq overall volume was down 3%. Again, as we have
been discussing all week, the market keeps creeping upwards on less and less

Although yesterday’s flat close created no new technical event
as far as daily charts are concerned, there was one interesting phenomenon which
is worth pointing out. The chart below is an hourly of the S&P 500, spanning
the last nine days of price action. From it we can possibly get a feel for where
the broad averages are heading over next few days.

Anytime that a market moves in one direction for a matter of hours,
days, or even weeks, its helpful to use Fibonacci to try and discern just how
much of that move will be retraced when the counter move occurs. It’s uncanny
how accurate Fibonacci retracement levels tend to be. The current chop upwards,
retracing last weeks downdraft is no exception. Notice on the graphic above that
we have currently retraced exactly up to the first Fibonacci retracement level
of 38.2% from the highs to the lows of that move. Generally if a weak market is
to reverse course and continue trend, this is the line in the sand where the
pivot will occur. Watch the broad market closely today to see if the area does
indeed become a reversal point. If this area is broken to the upside, keep in
mind that the steep down draft of the prior move will provide little resistance
to the upside. If that was to occur, then the S&P would more than likely
re-test its hourly 200 ma (blue line) above. This would be a logical next point
of resistance as it coincides perfectly with swing highs at that 1141 area.

We are at an interesting juncture here in the broad market. Having
rallied to this 38.2% retracement on lower volume, the odds would certainly
favor a reversal back to the downside and further lows in the broad averages.
However, the fact that there is little resistance above could also spur some
short covering which would allow the markets to advance relatively rapidly
through that low resistance area. Between current levels in the $SPX and the 200
ma there is pretty clear sailing to the upside. Nothing in the markets is
independent of anything else, however. Bulls should remember that there is a
weak Nasdaq running alongside the S&P and Dow which has been acting as a
drag on the broader market. That, together with the volume patterns which have
been evident all week may put the odds of the return to the lows slightly in the
bears favor. The astute trader will always be aware of as many possible outcomes
as he or she can before entering the markets on either side. Approach with

Today’s watch list:

There are no
new plays for today. Our PPH long was stopped out yesterday and the markets are
at the key pivot described above which could easily send the broad market and
sector ETF’s in either direction. Rather than guess we would rather preserve
capital for a time when the outlook is clearer.

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:

    PPH long (FULL position, from Mar 16) –
    long 78.10, sold at 76.50,
    points = (1.60), net P/L = ($160)


    PPH stopped out yesterday on further weakness in
    the $DRG which caused the ETF to make new lows below our stop.

    by Deron Wagner,
    Founder and President