The Wagner Daily | May 28, 2004

Commentary:

The major indices began the day with an opening gap above resistance yesterday, sold off to the prior day’s consolidation in the afternoon, but rallied back towards the intraday highs into the close. The prior day’s correction by time enabled follow-through to the upside, which was led by the blue-chip Dow, which closed with a gain of 0.9%. The S&P 500 Index closed 0.6% higher, but the Nasdaq lagged and only closed 0.4% higher. Volume increased only by a narrow margin of 5% in the NYSE and 3% in the Nasdaq. Since the broad market closed higher AND on higher volume, yesterday was technically an “accumulation day,” but volume levels still came in below their 50-day averages.

On the longer-term weekly chart, the S&P 500 Index is now looking better because it is back above its 200-week moving average, as well as its 10-week MA. However, the index is now nearing resistance of the upper channel of the primary downtrend, which began at the beginning of March. We have drawn this trendline resistance (in red) on the daily chart of the S&P 500 Index below:

Because this downtrend line has been intact for nearly three months, we have to assume it will continue to act as resistance on the S&P until proven otherwise. Therefore, due to the proximity of the S&P to this trendline resistance, we are very cautious about entering new long positions in the broad market and the SPY right now. Each of the other major indices also have trendline resistance overhead, but are further away from it. On the Dow Jones, for example, resistance of its primary downtrend line is still 200 points higher than yesterday’s close:

On the Nasdaq Composite, resistance of this downtrend line is at the 2,020 area, as you can see from the chart below:

The low-risk entry point to buying the stock market was at the beginning of this week, and we feel you are probably late to the party if you begin buying today. Odds more than likely will favor a correction within the next one to two days, and quite possibly a resumption of the primary downtrend that has been in place since March. All the major indices are back above their critical 200-day moving averages, but have trendline resistance overhead. Keep an eye on how the indices act as the approach their respective trendline resistance levels illustrated above. It’s important to also note the S&P 500 and Nasdaq Composite have closed higher for six and five consecutive days respectively. To see a day of correction would be completely normal at this point, especially when you consider that the gains have been on sub-par volume.

Note that the U.S. equities markets will be closed on Monday, May 31, for the Memorial Day holiday. The Wagner Daily will not be published on Monday, but regular publication will resume on Tuesday, June 1.

Today’s watch list:

(There are no new plays for today because we want to be flat the broad market ahead of the 3-day holiday weekend.)

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:

net P/L = ($28)

Open Positions:

(none)

Notes:

We bought DIA when it rallied above its 20-minute high yesterday, but sold due to broad market weakness in the afternoon. Updates were provided to subscribers via intraday e-mail alert.

Edited by Deron Wagner,
MTG Founder and
President