The Wagner Daily


The broad market closed sharply higher yesterday, as each of the major indices gapped up on the open and trended higher throughout the entire day. The Nasdaq Composite Index showed the most relative strength of the broad-based indices and closed with a 2.1% gain. The index also closed above the key psychological resistance level of 2,000 for the first time since April 27. Within the Nasdaq, the Semiconductor Index led the way higher yesterday and closed back above its 200-day MA, a feat that had previously been accomplished only once within the past six weeks. This enabled us to net a solid profit in our long position of SMH (Semiconductor HOLDR), which we entered on June 4 and sold into strength yesterday. Both the S&P 500 Index and Dow Jones Industrial Average also turned in impressive gains of 1.6% and 1.4% respectively. Unlike the previous day, each of the major indices closed at their intraday highs, which made yesterday one of the smoothest “trend days” we have seen in quite a while. It was certainly a welcome change from the intraday indecision and erratic behavior we have become accustomed to over the past month.

After the first hour of trading yesterday, volume in the Nasdaq was coming in 14% lower than the previous day, and 7% lower in the NYSE. However, as the markets trended higher, turnover steadily increased throughout the day. At day’s end, volume had increased by 10% in the NYSE and 4% in the Nasdaq. Because the major indices closed higher AND on higher volume, yesterday was technically a bullish “accumulation day.” However, since volume was already well below average levels, yesterday’s marginal increase still did not indicate a significant return of institutional interest. Despite the increase over the previous day, yesterday’s volume in the NYSE was still 16% below its 50-day average.

One positive for the S&P 500 is that the index has now rallied above the upper channel resistance of its downtrend from the March 5 high. This is bullish because it represents a technical break of a downtrend line that has been in place for three months. However, we cannot say the S&P has shifted into an uptrend UNLESS the index rallies above its prior high, around the 1147 – 1150 area. This would represent a “higher high.” But, until then, we still have a “lower high” that means the downtrend remains intact. The daily chart of the S&P 500 Index below illustrates the prior high to watch as key resistance this week:

The Nasdaq Composite Index also closed above resistance of its primary downtrend line yesterday, which had been in place since January of 2004. The next resistance of the “prior high” is shown on the weekly chart below:

The Dow Jones Industrial Average, which has been lagging behind both the S&P and Nasdaq, was the only one of the three major indices that did NOT yet break above resistance of its primary downtrend line. In fact, it closed right at its trendline resistance. For that reason, we initiated a short position in DIA (Dow Jones Indu. Avg. tracking stock) yesterday because we like the risk/reward of the trade. If it rallies above the trendline, we will quickly cover the position with a small loss. But, if the downtrend resumes, we are short at the top. The daily chart below shows how the Dow closed right at trendline resistance:

Because the major indices rallied so sharply yesterday, the markets are likely to consolidate their gains by trading in a narrow range today. As long as the broad market remains within the upper third of yesterday’s range, a correction by time would be bullish. If you were long yesterday, you probably are happy and sitting in profitable trades. If this is the case, we recommend the use of tight trailing stops due to the overhead resistance on the S&P 500. However, if you missed yesterday’s rally, we recommend caution against chasing stocks and buying without first seeing either a correction by price (retracement) or time (consolidation). If total market volume was stronger yesterday, we would be much more willing to enter new long positions today. But, we will not blindly enter stocks without the most important confirming indicator leading the way. Nevertheless, each of the major indices are now above key moving average resistance on both their daily and weekly charts, so odds probably favor the long side of the market, at least in the short-term. As always, just remember to trade what you see, not what you think. Adopting this as your mantra will enable you to consistently be on the “right” side of the markets.

Today’s watch list:

(There are no new plays for today, though we are now short DIA, which we entered yesterday.)

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 (HALF position, from June 4) –
    bought 37.45, sold 38.49, points = + 1.04, net P/L = + $152

Open Positions:

    DIA short (from June 7) –
    shorted 103.57, stop 104.25, target 101.20, unrealized points = (0.41), unrealized P/L = ($82)


Per intraday e-mail alert, we shorted DIA yesterday and also sold the remainder of our SMH long position into strength.

Edited by Deron Wagner,
MTG Founder and