The Wagner Daily


Although each of the major indices closed higher yesterday, total market
volume in both the NYSE and Nasdaq dropped towards its lowest levels of the
year. Due to a modest rally during the first hour of trading, the Nasdaq
Composite closed with a gain of 0.6% yesterday, while the S&P 500 and Dow
Jones Industrial Average closed 0.5% and 0.7% higher respectively. The intraday
trading range was very narrow, as the S&P futures spent most of the day in a
lethargic 3-point range, while the Nasdaq futures traded in only a 5-point
range. The lack of volatility in the markets yesterday is easily explained by
the minimal turnover in trading activity. Total market volume in the NYSE limped
in at only 1.1 billion shares, its lowest level since December 31, 2003, and 23%
below its 50-day average. Volume in the Nasdaq registered at 1.5 billion shares,
which was 11% lower than the previous day, and the fifth consecutive day below
its 50-day average. These light volume numbers are important to be aware of
because they tell us that institutional interest is staying on the sidelines.
When this occurs, markets can reverse their direction swiftly and easily because
it only takes a few institutional buyers or sellers to overpower the
light-volume trend. For this reason, we rarely trust buying light-volume
rallies, and are equally cautious about shorting light-volume selloffs. Extended
periods of declining volume simply warrant caution all around because it often
masks what is really happening beneath the surface.

While our usual
focus is on the daily charts, it is important to keep a close eye on the
longer-term weekly charts of the major indices as well. Weekly charts remove the
“noise” from the daily charts that is often present on a day-to-day basis, and
they also provide a more accurate picture of what is really happening on an
intermediate-term basis. A quick glance at the weekly chart of the S&P 500
Index reveals two important points. First, the 200-week moving average has been
acting as support for most of this year and continues to be an important area of
support at the 1,109 area. The second thing you will notice is the break of the
primary uptrend line from the lows of March 2003. The prior support of this
uptrend line is now acting as the new resistance level. Remember that prior
support becomes the new resistance once the support is broken. The weekly chart
of the S&P 500 Index below illustrates last month’s break of the primary
uptrend line, as well as last week’s test of the new resistance:

On a shorter-term basis, yesterday’s action did not really change the
technical picture of the major indices, as each of them remain stuck in a
trading range for the past six days. For the S&P 500 Index, resistance of
this trading range is 5 points above yesterday’s close, at the 1,150 level.
Support of the lower end of the range is at 1,134, which converges with its
50-day moving average. For the Nasdaq Composite, resistance is at the 2,075 to
2,080 level, while support will be found at the 2,040 to 2,045 level. The Dow is
the weakest of the major indices and has actually been in a downtrend the past
several days, rather than a sideways trading range. Last Thursday’s low at the
10,400 area is support on the Dow, while resistance is from 10,530 to 10,570.

Looking at individual sectors, keep an eye on the Oil and Oil Service
stocks over the next several days. We bought the Oil Service HOLDR (OIH)
yesterday because the Oil Service Index ($OSX) broke above resistance of its
downtrend line after forming a “higher low” on its daily chart. This enabled the
Oil Service index to close above resistance of both its 20 and 50-day moving
averages. We have an unrealized gain of 1 point on the OIH trade so far, but we
anticipate more follow-through to the upside over the next several days. The
daily chart of the Oil Service Index below illustrates yesterday’s breakout:

Remember that earnings season is beginning to kick into gear
and Intel reports after the close today. A complete list of corporate earnings
can be found on the Yahoo! Finance earnings
. Volume is likely to remain light until after some of these big
companies begin reporting. We won’t even begin to anticipate how the markets
will react to the earnings reports, but remember one thing — The actual reports
and whether or not a company beats estimates simply DOES NOT MATTER. Instead, it
is the market’s REACTION that matters. Therefore, let’s not anticipate, but
simply react as earnings begin to hit the street. Trade what you see, not
what you think!

Today’s watch list:

Since we
currently have three open positions, there are no new trade setups for today.
Instead, we will focus on managing the existing positions for maximum
profitability and minimal risk.

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:

    OIH long (from April 12) –
    bought 70.05, new stop 70.20, target 72.90,
    unrealized points = + 0.95, unrealized P/L = + $95

    IWM short
    (from April 6) –
    shorted 119.53, stop 121.10, target 116.20, unrealized
    points = + 0.11, unrealized P/L = + $11

    QQQ short (from April 6)

    shorted 37.10, stop 37.49, target 36.10, unrealized points = (0.07),
    unrealized P/L = ($28)


    Per intraday e-mail alert, we bought OIH yesterday
    and have also raised the stop as per above. We also remain short IWM and QQQ
    with the same stops. If QQQ or IWM gap up to open at or above their stop prices,
    remember to use the MTG Opening Gap
    to manage the positions and set new stops above the 20-minute highs.

    Edited by Deron Wagner,
    MTG Founder and