The Wagner Daily | July 14, 2004

Commentary:

Yesterday was the quietest day we have seen in many months, as the S&P 500 Index traded in a range of only 3.31 points throughout the entire day! According to our calculations, yesterday was the narrowest intraday range in the S&P 500 Index since December 26, 2003. On that post-holiday session, the S&P traded in a range of only 2.32 points! Needless to say, not much happened yesterday, as most traders were awaiting the release of Intel’s earnings after yesterday’s close. Both the S&P 500 and Dow Jones Industrial Average closed with gains of 0.1%, but the Nasdaq once again lagged behind and closed 0.3% lower. However, volume in the Nasdaq also declined by 7%, which confirmed it was not a major day of distribution. Volume in the NYSE rose by 8%, but was still below average levels.

If we spend much time analyzing charts of the major indices, we would be redundant, as nothing has technically changed with yesterday’s action. Just like we explained in yesterday’s newsletter, both the S&P 500 and Dow Jones remain above key support of their prior downtrend lines, with the Dow finding support at its 200-day MA. The Nasdaq Composite Index remains below all key levels of support and also failed to follow through on the previous day’s bullish candlestick formation. You may wish to review yesterday’s Wagner Daily in order to review the pivotal support and resistance levels in the major indices.

Because the major indices are in such a tight range, we have been focusing on trading individual market sector ETFs rather than the broad-based ETFs such as SPY or QQQ. While the market goes nowhere, there are a few individual sectors that are poised to make a move. The Pharmaceutial Index, for example, began to show relative strength yesterday, which was largely due to a positive earnings report from Johnson & Johnson (JNJ). Per yesterday’s newsletter, we bought PPH, which is the ETF that tracks the primary pharmaceutical companies. We also noted weakness in the Internet sector yesterday and, per intraday e-mail alert to subscribers, we entered a short position in HHH (Internet HOLDR). Ever since Yahoo! gapped down after last week’s earnings report, it has been unable to recover and is simply consolidating near the lows of its gap down. Other leading stocks in the index, such as eBay, have also broken below support of their uptrend lines and are now consolidating at the lows. When an index fails to rally after breaking support, it usually goes lower, which is why we made the decision to short HHH yesterday. Below is the daily chart of the Internet Index ($GIN) that illustrates the break of support and correction by time (consolidation at the low):

Most of the earnings warnings and analyst downgrades have already occurred and we are now entering the heavy period of actual corporate earnings reports. The passing of earnings warning season should enable the market to begin trending once again, as we should begin to see the return of volume into the markets. The market’s initial reaction to Intel earnings after yesterday’s close was negative and, at the time of this writing, the broad market is poised for a lower opening. While we do not advise blindly buying the market here, we also think that caution is required on the short side of the market due to the rather extended selloff in the Nasdaq that has occurred without a substantial bounce. If you missed shorting the selloff of the past two weeks, so be it! It’s better to miss potential profits than to jump in and short at what could be a short-term bottom.

Today’s watch list:

There are no new plays for today, but we remain long PPH and short HHH from yesterday’s entries.

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:

unrealized P/L = ($12)

HHH short (from July 13) –
shorted 57.48, stop 58.70, target 52.20, unrealized points = (0.02), unrealized P/L = ($4)

Notes:

Per yesterday’s newsletter, we bought PPH when it traded above the previous day’s high. We also shorted HHH.

Edited by Deron Wagner,
MTG Founder and
President