The Wagner Daily


The major indices stopped the previous day’s bleeding, but consolidated in the lower half of the previous day’s range and failed to make much headway yesterday. The Nasdaq Composite Index, which lost 2.1% the previous day, bounced 0.9% higher, but still closed below both its 20 and 50-day moving averages and the “psychologically important” 2000 level. The S&P also recovered a bit of its prior losses and closed with a gain of 0.5%. However, the Dow Jones Industrial Average failed to make headway and closed flat (up 2 points to be exact).

Volume in the NYSE increased by 15% yesterday, while the Nasdaq’s volume was 9% greater than the previous day. Due to the previous day’s sharp increase in volume, this caused yesterday to be the largest volume day in the NYSE since March 11. Since the broad market closed in the green, this volume spike would normally be considered bullish. However, when compared to the extent of the previous day’s losses, the major indices really did not make much headway. Rather than being an institutional “accumulation day,” it felt more representative of “churning.” If you punch the accelerator in a powerful sports car from a standing position, what happens? The wheels will spin, but you won’t go anywhere. This is similar to what occurred in the broad market yesterday; volume increased substantially, but the markets failed to generate concurrent gains. The Dow Jones Industrial Average, for example, dropped 146 points the prior day, but only closed 2 points higher yesterday. Similarly, the S&P 500 Index fell 17 points the prior day, but only regained 6 points yesterday. When a high volume day of “churning” occurs after a sharp day of declines, this historically has led to new lows during subsequent days.

Looking at the daily charts, yesterday’s action did not significantly change the technical picture, as each of the major indices remain below resistance of both their 20 and 50-day moving averages. You may recall that, after selling off on April 13, many of the indices rallied perfectly into Fibonacci resistance last week before reversing and setting new lows this week. Similarly, both the S&P 500 Index and Nasdaq Composite stopped perfectly at their 38.2% Fibonacci retracement levels yesterday. The charts below illustrates how SPY (S&P 500 Index), DIA (Dow Jones Industrial Average), and QQQ (Nasdaq 100 Index) each found resistance at their 38.2% retracement levels:

Isn’t it fascinating how well Fibonacci works at predicting resistance points when an index bounces from a selloff (and vice versa)? As we have mentioned in the past, an index is likely to resume in the direction of the trend as long as it does not retrace more than 61.8%. Therefore, if an index cannot even rally beyond its 38.2% retracement level, it indicates an additional degree of weakness. Going into today, you obviously should keep an eye on the 50% and 61.8% Fibonacci retracement levels on the major indices, as these will provide the next areas of resistance. As you can see from the chart above, the 50% retracement of SPY is at 113.05 and the 61.8% retracement is at 113.34. For DIA, the 50% retracement is at 103.79 and the 61.8% is at 104.07. On QQQ, the 50% retracement is at 36.22 and the 61.8% retracement is at 36.36. You will notice in our position summary below that the stops for both the SPY and DIA shorts have been lowered to just above the 61.8% retracement levels because a rally beyond that could easily trigger a complete reversal of the weakness. Support is obviously found at yesterday’s lows. If the indices break below yesterday’s lows, the daily charts show no price support until the prior lows from March, as discussed a few days ago. As always, remember to trade what you see, not what you think!

Today’s watch list:

Since we are already in three positions, there are no new trade setups for today. Instead, we will focus on managing our open positions for maximum profitability and minimal risk. As always, we will send an intraday e-mail alert if/when we enter any new positions.

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 (HALF position, from April 20) –
    shorted 113.85, covered 111.95, points = + 1.9, net P/L = + $187

    DIA short (HALF position, from April 20) –
    shorted 104.57, covered 102.78, points = + 1.79, net P/L = + $176

    IWM short (HALF position, from April 21) –
    shorted 114.16, covered 115.37, points = (1.21), net P/L = ($62)

Open Positions:

    SPY short (HALF position, from April 20) –
    shorted 113.85, new stop 113.35, target 111.40, unrealized points = + 1.18, unrealized P/L = + $118

    DIA short (HALF position, from April 20) –
    shorted 104.57, new stop 104.10, target 102.20, unrealized points = + 1.27, unrealized P/L = + $127

    IWM short (HALF position, from April 21) –
    shorted 114.16, new stop 116.35, target 110.80, unrealized points = (2.24), unrealized P/L = ($112)


Per intraday e-mail alert, we covered half the share size of our SPY and DIA short positions into weakness yesterday morning, and also covered half of the IWM position later in the day. We also raised the stop on IWM, which traded up to our stop after the 4:00 pm EST closing time, but did not trigger our stop since it was after hours. As such, we will use the MTG Opening Gap Rules to manage the position today. If it opens at or above our stop price, we will raise the stop to just above the high of the first 20 minutes. Stops on SPY and DIA have been tightened to protect profits.

Edited by Deron Wagner,
MTG Founder and