Commentary:

The major indices failed to follow through on the previous afternoon’s rally and wiped out several days of gains instead. The broad market trended lower for the first half of the day, attempted to rally in the afternoon, but failed to make much headway. Both the S&P 500 and Dow Jones Industrial Average closed with losses of 1.0%, while the Nasdaq lost 1.6%. Volume increased during the morning selloff, but slowed during the afternoon rally attempt. For the day, volume in the NYSE increased by 2%, while Nasdaq volume was about the same as the previous day. Yesterday’s weakness was broad-based and no major sector was unscathed. Declining volume outpaced advancing volume by nearly 4 to 1 in the NYSE.

The breakout in the Semiconductor (SOX) Index, which occurred earlier in the week, seems to have failed. The SOX index sold off sharply yesterday and closed with a loss of 3.7%. This put the index back below the downtrend line it had previously broken. This did not negatively affect us, as the SMH long setup never traded above its trigger price. But, all bets are off on the long side of the SOX index now. The chart of the SOX index below illustrates the failed breakout:

Yesterday’s selloff caused both the S&P 500 and Dow Jones Industrials to break below support of their 20-day moving averages, as well as below lower channel support of their uptrends from the lows of May. While this is not good news for the bulls, at least the S&P and Dow may finally be breaking out of the sideways trading range that they have been stuck in for the past several weeks. Like we mentioned yesterday, the Nasdaq was showing strength, but the S&P and Dow were diverging. It seems that the S&P and Dow won the tug-of-war, as both broke support yesterday. The daily charts of the Dow and S&P below illustrate the break of the 20-day moving averages and primary uptrend lines:

Due to yesterday’s break of support in the S&P and Dow, we are now shifting to a short-term neutral bias. We are not very bearish because both the S&P and Dow are still above support of their prior downtrend lines, which they rallied above in early June. The Nasdaq also still looks okay on its daily chart. However, we are now going to approach any new long positions with major caution. The broad market will probably resolve itself out of this range within the next several days, but until it does, cash is not a bad idea.

Note that the equity markets are closed on Monday, July 5 in honor of Independence Day. The Wagner Daily will not be published on Monday, but regular publication will resume on Tuesday, July 6.

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Today’s watch list:

There are no new setups for today, ahead of the 3-day weekend.

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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:

(none)

Open Positions:

(none)

Notes:

We were all cash yesterday, as the SMH long setup did not hit the trigger price.

Edited by Deron Wagner,
MTG Founder and
President