Commentary:

Each of the major indices gapped open above last Friday’s respective highs, but promptly sold off down into the previous day’s range and spent the remainder of the day chopping around in a narrow range. The Nasdaq Composite Index showed the most relative strength yesterday, buoyed by the tech sectors, and closed with a gain of 0.6%. The S&P 500 Index squeezed out a gain of 0.2%, but the Dow Jones Industrial Average closed with a loss of 0.1%. The Russell 2000 Small Cap Index outperformed the broad market yesterday and closed 1% higher, indicating a potential return to more speculative issues. Total market volume in the Nasdaq increased by only 3% versus the previous day and is still more than 20% below its 50-day average volume. Volume in the NYSE decreased by 2%, but advancing volume outpaced declining volume by a ratio of 2.2 to 1. Leading sectors in the S&P were Oil and Oil Service, Home Construction, and Utilities, while the Internet-related sectors led the Nasdaq. Weakness was found in the Pharmaceutical, Telecom, and Financials.

Not surprisingly, yesterday’s broad market action was similar to what we have been seeing for the past several weeks. It was another case of the same ol’ indecisive and choppy intraday action, but just a different day. In yesterday’s Wagner Daily, we illustrated the numerous “doji star” candlestick formations that have been appearing on the daily chart of QQQ (Nasdaq 100 Index), and yesterday’s market action once again formed the same pattern. Although QQQ rallied above its 200-day moving average on an intraday basis, it eventually closed just below it. Similarly, the Dow Jones Industrial Average has been trying to rally above its 200-day MA, but has stopped dead in its track on each test of the past two days. We’ve been discussing the power of the 200-day moving average with regard to being a solid support or resistance level, and the chart below illustrates how the 200-day MA has perfectly acted as resistance on the Dow over the past two days:

The Dow’s inability to climb back above its 200-day moving average is certainly bearish, but the broader-based S&P 500 Index is still holding above its 200-day MA, after testing its support twice within the past month. Take a look:

Our thoughts going into today are the same as yesterday; there is no reason to be aggressively trading the markets until we see a break out of this “chop zone” that has developed over the past three weeks. The longer the market consolidates in a narrow range, the more significant the range expansion will be when it finally occurs. But, we don’t know when this will occur, nor we do know which direction it will take us. So, remain alert and nimble so that you will be ready to capitalize on the market’s next major move.

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Today’s watch list:

DIA – Dow Jones Industrial Average
Short

Trigger = below 99.35 (below yesterday’s low)
Target = 97.30 (fibo support)

Stop = 100.20 (above the 20 and 40-MA/60 min.)

Notes = It may not trigger today, but we want to short DIA if the Dow breaks yesterday’s lows, which could break us out of the recent choppy range.

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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:

SMH long (from May 19) –
bought 37.39, sold 36.96 (avg.), points = (0.43), unrealized P/L = ($138)

Open Positions:

(none)

Notes:

We closed SMH with a trailing stop yesterday due to indecisive broad market action. We were not in any ETFs overnight.

Edited by Deron Wagner,
MTG Founder and
President