The Wagner Daily


The major indices each closed higher yesterday, but total market volume once again declined in both the NYSE and Nasdaq. The S&P 500, Dow Jones Industrials, and Nasdaq Composite each began the day with an opening gap up above the previous day’s highs, but the lack of volume prevented the broad market from trending higher. Instead, the major indices traded sideways in another choppy, narrow-range day and closed near their opening prices. Strength in the Semiconductor Index ($SOX) enabled the Nasdaq to have relative strength and close with a gain of 1.1% yesterday, while both the S&P 500 and Dow Jones Industrials closed approximately 0.7% higher. Strength in the Retail sector led the S&P and Dow higher.

Curiously, yesterday was the lightest volume day of the year in the Nasdaq, as the index traded only 1.44 billion shares. Volume in the NYSE was also lighter and came in 6% lower than the previous day. Turnover was on par with the light volume sessions we typically see in a pre-holiday session, but there are no holidays this week. Instead, we are simply seeing the result of a market where the sellers are temporarily gone, but institutions simply have no interest in aggressively buying stocks, most likely due to prospects of pending interest rate increases. The fact that the major indices each closed above their respective highs of the previous day was bullish, but the unimpressive volume means we cannot trust the legitimacy of the gains. Until volume picks up above average levels, we continue to remain very cautious on BOTH sides of the market because light volume days are usually quite choppy and erratic.

The Nasdaq Composite Index, as well as many other indices and sectors, formed a chart pattern known as an “island reversal” over the past three days. This pattern formed because the index gapped down and closed below the previous day’s low on Monday, May 17, but then gapped up and closed above the previous day’s high yesterday, May 18. In this case, the pattern is bullish because it has the effect of quickly trapping the bears who shorted Monday’s gap down. The daily chart of the Nasdaq below illustrates this chart pattern, which is somewhat uncommon:

The “island reversal” patterns that formed on many of the daily charts should lead to higher prices over the next several days, but it’s difficult to say that with confidence given the meager volume the broad market has been demonstrating. Until volume increases and the market begins showing conviction in one direction or the other, our general thoughts of the past few days remain the same. Capital preservation is our current primary focus and we are being very careful against overtrading in this choppy market. Remember that patience pays big dividends in trading!

Today’s watch list:

SMH – Semiconductor HOLDR

Trigger = above 37.05 (above yesterday’s high)
Target = 39.40 (just below resistance of 200-day MA)

Stop = 36.20 (below yesterday’s low)

Notes = The $SOX index began showing relative strength yesterday after forming a “higher low” on the daily chart. A rally above yesterday’s high will put the SOX index (and SMH) above the upper channel of its hourly downtrend line and will likely trigger a multi-day rally. We bought Intel (INTC) for swing in the MTG Intraday Real-Time Room yesterday, so we will look to buy the Semiconductor ETF (SMH) today as well. n the event of an opening gap above the trigger price, remember to use the MTG Opening Gap Rules to wait for break of 20-minute high before buying.

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:

    TLT long (HALF position, from May 13) –
    bought 80.85, new stop 81.49, target 82.90, unrealized points = + 0.86, unrealized P/L = + $86

    EWH long (from May 17) –
    bought 8.94, new stop 8.94, target 9.35, unrealized points = + 0.13, unrealized P/L = + $52


We used the MTG Opening Gap Rules to adjust our stop in the remaining shares of TLT yesterday, due to the opening gap down to our trailing stop price. New stop listed above. We also raised the stop to breakeven on the EWH position.

Edited by Deron Wagner,
MTG Founder and