The Wagner Daily


Total market volume increased yesterday, but each of the major indices closed fractionally lower, meeting the technical definition of a bearish “distribution day.” Yesterday’s trading action was choppy and indecisive, complete with both failed breakdowns and breakouts throughout the day. We shorted SPY (S&P 500 Index) when it broke to a new low yesterday morning, but the major indices rallied to a new intraday high at 2:00 pm EST and stopped us out. Unfortunately, the rally was just enough to stop us out before the afternoon breakout failed and the major indices dropped back down into the prior range. Much of this indecisive price action could have been attributed to yesterday being the last day of the first calendar quarter, which was likely subject to mutual fund “window dressing” and the corresponding synthetic moves that often occur. The late day weakness resulted in closing losses for the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite of 0.1%, 0.2%, and 0.3% respectively. It’s frustrating when you get stopped out right before a trade reverses in your favor, but it’s just part of the game. Remember that we can always re-enter a position after being stopped out, and often at a better price. As you know, using protective stops must always be your first priority.

Because yesterday’s losses were minimal, it’s probably not accurate to define yesterday as a confirmed “distribution day.” However, if the major indices see a day of significant losses on higher volume within the next two days, it will likely be enough selling pressure to undo the gains of the past week. This is because the primary downtrend line of the Nasdaq Composite, which converges around the 2,000 price level, still has not been broken. From a purely technical basis, the Nasdaq remains in a primary downtrend that has been intract since January 26. On the other hand, a high volume break above the 2,000 level would confirm a break of this downtrend. The daily chart of the Nasdaq below illustrates this:

While the downtrend line is not as clear as with the Nasdaq, the S&P 500 Index remains stuck at resistance of its prior highs from the middle of March. The 200-week moving average should now act as support at the 1,112 area, but the 1,125 – 1,127 range is key resistance, as illustrated below:

Because volume usually leads price, we feel that yesterday’s higher turnover, without a corresponding increase in broad market gains, was the equivalent of “churning.” In the past, this has often resulted in broad-based losses the following day. Because the major indices remain at such a pivotal point, all eyes will be on yesterday’s price range of both the S&P and Nasdaq. A break below yesterday’s low of 1,121 in the S&P 500 or 1,985 in the Nasdaq is likely to trigger sell programs and result in a confirmed downtrend today. Conversely, a high volume break above yesterday’s highs of 1,130 in the S&P or 2,004 in the Nasdaq would result in a break of the prior resistance in the S&P or a break of the Nasdaq’s primary downtrend. We recommend remaining mostly in cash until either yesterday’s lows or highs are broken. Otherwise, you are likely to get chopped up in whippy trading action, as we witnessed yesterday.

Today’s watch list:

SPY – SPYDERS (S&P 500 Index Tracking Stock)

Trigger = below 112.52 (below yesterday’s intraday support)

Target = 111.00 (50% retracement of recent rally)

Stop = 113.25 (above yesterday’s close)

Notes = Looking for re-entry in SPY short, but only if it breaks below yesterday’s intraday support of 112.60.

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:

    SPY short (from March 31) –
    shorted 112.54, covered 113.12, points = (0.58), net P/L = ($122)

Open Positions:



Per yesterday’s newsletter, we shorted SPY when it broke below the low of the first 20 minutes, which occurred later in the morning. However, the afternoon rally (which later failed) stopped us out after SPY rallied to a new high of the day. We kept the loss tight and will re-assess for potential re-entry.

Edited by
Deron Wagner,
Founder and President