The Wagner Daily | March 26, 2004

Commentary:

As we anticipated in yesterday’s Wagner Daily, the Nasdaq, and particularly the tech-related sectors, led the broad market sharply higher yesterday and pushed our QQQ long position well into the green. After beginning the day with an opening gap, the major indices trended smoothly higher throughout the entire day before closing near their intraday highs. Given the dull trading range that had formed during the prior three days, the breakout and subsequent intraday uptrend was not surprising, especially after the highs of the prior three days were broken within the first 30 minutes of trading. For the day, the Nasdaq closed with an impressive gain of 3%, the largest percentage gain for the Nasdaq since July 6 of 2003. Not surprisingly, the Semiconductor Index was among the leading sectors and closed with a gain of 3.6%. Both the S&P 500 Index and Dow Jones Industrial Average also participated in the rally and each closed approximately 1.6% higher.

Although yesterday’s percentage gains were a welcome relief for the bulls, the more important factor of yesterday’s trading was that volume also increased by 7% in the Nasdaq. While volume still came in below the 2 billion share mark, it was a nice change to see the Nasdaq close with a large percentage gain AND on higher volume than the previous day. It was actually the first day since January 16 that the Nasdaq closed significantly higher and on higher volume. This indicates to us that yesterday’s rally was driven in part by institutional interest, although one day of gains on higher volume is certainly not enough to declare anything more than a technical bounce within the context of an intermediate-term downtrend. Unfortunately, volume in the NYSE did not confirm the gains in the S&P and Dow because turnover was flat versus the previous day. Volume breadth was positive, however, as advancing volume outpaced declining volume by nearly 3 to 1 in the NYSE.

Assuming the Nasdaq is able to sustain yesterday’s gains, the index will close higher for the week, a rare feat given that the Nasdaq has closed lower in 8 out of the past 9 weeks. As the weekly chart of the Nasdaq below illustrates, the 40-week moving average perfectly acted as support this week, as we alerted you to this likelihood at the end of last week:

While the 40-week MA acted as support at the 1,900 area, the next major resistance levels will be the convergence of the 10 and 200-week moving averages, which you can see converges at the 2,030 area. However, there is also resistance of the primary downtrend line around the 2,000 area. The daily chart of the Nasdaq below illustrates this trendline resistance. Notice also how the Nasdaq rallied off the lower channel support of the downtrend as well (we have removed the moving averages so that you can see the trendlines more easily):

Since this downtrend line has been intact since the high of January 26, we have to assume it will remain intact until the Nasdaq proves otherwise. Therefore, if you have long positions, keep a close eye on this area because the Nasdaq is not likely to break through this resistance on its first attempt. Instead, consider this level of resistance to be a good point to sell long positions and get short instead.

Both the S&P 500 and Dow Jones Industrial Average continue to show relative weakness to the Nasdaq. So, you probably should continue focusing your buying efforts on the Nasdaq-related sectors, specifically the technology stocks. Both the S&P and Dow remain well above their 200-day moving averages and their 40-week moving averages. It seems likely both of these indices will correct a bit more, at least down to their 40-week moving averages. Conversely, the Nasdaq has already done so. Looking at the weekly chart of the S&P, you will also notice that yesterday’s rally put the index just below resistance of its 200-WEEK moving average, which is likely to act as solid resistance at the 1,114 level. The weekly chart of the S&P below illustrates this:

Note that the 200-week MA is only five points above yesterday’s closing price of 1,109. As such, the 1,114 level will be key resistance to watch going into today. While I don’t think the S&P and Dow will give back yesterday’s gains today, it is not likely they will go much higher either. The Nasdaq, on the other hand, has a bit more room to run before running into any significant resistance. On a different note, you may also want to keep a close eye on the gold and silver mining sector today, as many of those individual stocks such as NEM, ABX, and PDG put in strong gains yesterday. The $GOX (gold) index is also poised to break out of a consolidation phase.

Today’s watch list:

We like the gold sector on the long side today, but there is not an ETF for those stocks. Consider leading stocks such as NEM,ABX, PDG, AU instead. As for ETFs, we remain long QQQ with a nice profit, but do not want to buy new positions ahead of the weekend. Instead, we will see if the major indices are able to sustain yesterday’s gains, then re-evaluate for new plays on Monday.

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:

(none)

Open Positions:

unrealized P/L = + $304

Notes:

We remain long QQQ, but have raised the stop. We are now using tight stop in order to protect gains while in the context of a downtrend.

Edited by
Deron Wagner,
MTG
Founder and President