The Wagner Daily


In many ways, yesterday’s price action was similar to the previous day in that the major indices showed no real direction and oscillated between positive and negative territory throughout the day. Like the previous day, each of the indices closed near the flat line, but this time the Nasdaq managed to close with a gain of 0.4%. At its intraday high, the Nasdaq Composite was 1.1% higher, but its strength faded in the afternoon. Unlike the Nasdaq, both the S&P 500 and Dow Jones Industrial Average closed with small losses of 0.2%. Unfortunately, volume only increased by 0.4% in the Nasdaq and declining volume outpaced advancing volume by a margin of 6 to 5. The lack of a volume increase and negative breadth means that yesterday’s mild 0.4% gain in the Nasdaq was not confirmed by institutional volume. Volume increased by 5% in the NYSE, which was bearish because the indices closed lower on the day.

Not surprisingly, the Nasdaq showed relative strength and diverged from both the S&P and Dow yesterday. This is what we anticipated and is the reason we took a long position in QQQ instead of SPY or DIA. One reason the Nasdaq is likely to continue showing relative strength to the other indices over the next several days is the simple fact that it sold off ahead of and much harder than both the S&P and Dow over the past two months. Furthermore, the Nasdaq remains at a key technical support level of both its 200-day MA and 40-week MA, as we have discussed and illustrated several times over the past week. For these reasons, we are likely to continue seeing sector rotation out of the S&P and Dow and back into the Nasdaq.

Even though we expect the Nasdaq to put in a significant bounce at current levels, we do NOT yet feel there is any good reason to aggressively “back up the truck” on the long side. In order to be more confident on the long side, we still need to see a day in which the Nasdaq closes at least 1 – 2% higher AND on significantly higher volume than the previous day. Both of these factors would indicate at least a temporary return of institutional buying interest, which is always necessary in order for rallies to be sustained. Furthermore, it would be good to see participation in the S&P and Dow as well. Without the S&P and Dow moving higher. While the intermediate-term trend of the Nasdaq has been “down” for the past several months, the longer-term trend of the past year is still “up” because the index remains above its 200-day MA.

If you want to “test the water” on the long side of the market over the next several days, your best odds probably lie with buying the broad-based ETFs such as QQQ (which we are already long) and ONEQ (Nasdaq Composite Index), and technology sector-related ETFs such as SMH (Semiconductor HOLDR), or SWH (Software HOLDR). One thing we noticed yesterday was that most of the individual gainers in the Nasdaq were the large cap tech stocks such as Microsoft, which has been forgotten about for the past two months, while the small-cap tech stocks languished. The Semiconductor Index ($SOX) rallied more than 2% yesterday, which means we were a few days early on the SMH long entry we attempted.

By knowing which areas of the Nasdaq are showing the most strength, you can increase your odds of profitable trades by following along with the sector buying patterns. However, if yesterday’s low in the Nasdaq is broken today, all bets are off on the long side because it would represent a break to a new low of the week and the Nasdaq would probably break the 200-day MA. In summary, you may want to stick with the large cap tech stocks if you buy over the next several days, particularly in the Semiconductor Index. It is probably best to avoid trading SPY (S&P 500 Index) or DIA (Dow Jones Industrial Average) until they confirm the bounce the Nasdaq has begun.

Today’s watch list:

There are no new plays for today, although we remain long QQQ. You may also consider buying ONEQ. As you know, we want to see confirmation of a higher volume rally before looking to enter new long positions. Conversely, we feel the risk/reward of initiating new short positions at current price levels is not good.

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:

    QQQ long (from March 23) –
    bought 34.58, stop at 33.94, target of 36.50, unrealized points = (0.16), unrealized P/L = ($64)


We remain long QQQ with the same stop, although we will trail it higher today if it breaks out to the upside.

Edited by
Deron Wagner,
Founder and President