The Wagner Daily


The broad market continued its recent pattern of indecision yesterday and kept both the bulls and bears on their toes. Each of the major indices trended steadily lower for the first hour of the day, then consolidated at their intraday lows in a very tight range for four hours. At 2:45 pm EST, a strong rally hit the major indices and caused the Nasdaq to completely reverse its morning weakness and actually rally to a new intraday high. The S&P 500 and Dow Jones also reversed their morning weakness, but lagged behind the Nasdaq and did not have enough strength to break above their morning highs. But, just when the bulls began to get excited about the afternoon rally, the broad market reversed once again and the major indices retraced most of their gains from the rally. This caused both the Dow and S&P to close near their intraday lows, but the Nasdaq Composite closed in the middle of its range. The Nasdaq closed with a loss of 0.5%, the S&P 500 closed 0.7% lower, and the Dow shed 0.9%. Volume in the Nasdaq was 1% lower than the previous day, but total volume in the NYSE was 4% higher. Since both the S&P and Dow closed with losses AND on higher volume, yesterday was technically a bearish “distribution day,” although the intraday gyrations made it difficult to feel like one. Below is an intraday chart of the S&P 500 Index that illustrates the morning downtrend, consolidation at the lows, the afternoon breakout, and subsequent failure:

When you see a multi-hour consolidation at an index’s intraday lows, it usually results in a resumption of the downtrend and results in lower prices later in the day. Just as a consolidation at the highs is bullish and usually results in new highs, a consolidation at the lows (correction by time) is bearish and typically leads to new lows. But, this was not the case yesterday. Unfortunately, the broad market has been plagued with indecision lately that has prevented the major indices from having an intraday trend that remains intact for more than a few hours. While frequent intraday reversals are fine for intraday traders, it causes challenging trading conditions for multi-day “swing” traders such as ourselves. Our “swing” trades attempt to capitalize on riding a trend for several days and netting a decent profit, but that is difficult to do when the trends don’t last for more than a few hours. The morning weakness in the broad market caused us to be stopped out of our long position in BBH, which was not a big deal, but the afternoon rally erased our unrealized gains in the QQQ and IWM short positions. If, conversely, the market would have maintained the direction of its morning trend, the BBH would have been stopped out, but the gains in QQQ and IWM would have been more than the loss from BBH. Do you see why it is often difficult and frustrating to “swing” trade the ETFs when the market enters into a choppy mode? Until the broad market stops chopping around and begins trending once again, cash looks like one of the best places to be, unless you are an intraday trader who takes profits quickly. Let the bulls and bears battle it out; we’ll wait on the sidelines and go with the resulting trend, whichever direction it finally goes.

Quarterly earnings season has begun and this is likely to be a driving factor that determines the direction of the broad market’s next major move out of the current trading range. The season kicked off on a somewhat negative note due to Alcoa’s worse than expected report on Tuesday. However, Genentech (DNA), Research in Motion (RIMM), and Yahoo! (YHOO) each reported earnings after yesterday’s close and all three companies exceeded profit and revenue expectations. This resulted in strong gains for each of these stocks in the after-hours market, as well as today’s pre-market session. Not surprisingly, this also resulted in a sharp move higher in the broad-based futures markets. If the S&P and Nasdaq futures open the day at current pre-market levels, each of the major indices will open above yesterday’s respective highs. If the gap holds, it would obviously be bullish, but we continue to recommend caution until the market proves it can end the pattern of intraday indecision. As always, caution is warranted with buying an opening gap because many gaps fail within the first 20 – 30 minutes of trading. Use the MTG Opening Gap Rules to keep you out of trouble if trading the open.

As an aside, please note the U.S. equities markets will be closed this Friday, April 9, in observance of Good Friday holiday. The Wagner Daily will not be published on Friday, but regular publication will resume on Monday.

Today’s watch list:

Per the above comments regarding choppy trading conditions, there are no new trade setups for today.

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:

    BBH long (from April 5) –
    bought 148.00, sold 145.10, points = (2.90), net P/L = ($293)

Open Positions:

    QQQ short (from April 6) –
    shorted 37.10, new stop 37.49, target 36.10, unrealized points = + 0.16, unrealized P/L = $64

    IWM short (from April 6) –
    shorted 119.53, stop 121.10, target 116.20, unrealized points = (0.64), unrealized P/L = ($64)


BBH hit its stop due to broad market weakness in the morning. We remain short QQQ and IWM and will be honoring the same stops as yesterday. However, due to the large gap in the futures today, we will be using the MTG Opening Gap Rules to manage the positions. This means our stop will be adjusted to just above the high of the first 20 minutes, in the event of an opening gap above our stop price.

Edited by
Deron Wagner,
Founder and President