The Wagner Daily


Yesterday was quite a roller coaster ride in the broad market, which was great for intraday traders who thrive on momentum, but challenging for multi-day “swing” traders who capitalize on riding trends. The day began with a large opening gap down due to a negative reaction to Intel’s quarterly earnings report, but the major indices quickly reversed their opening losses and rallied sharply throughout the entire morning. Volume surged over the previous day and it initially appeared the broad market would realize a bullish “accumulation day” in which the major indices would close higher and on higher volume. But it just wasn’t to be. The buyers disappeared in the afternoon, as confirmed by an intraday decline in volume, and the sellers stepped in. By the end of the day, each of the major indices had rolled over back down to test their morning lows. The broad market bounced slightly into the close, but still closed in the lower third of their respective intraday ranges. What began as a very bullish, high volume reversal in the morning actually turned into an equally bearish “distribution day” in the broad market.

When yesterday’s indecision and volatility finally settled, the S&P 500 and Dow Jones Industrial Average both closed approximately 0.3% lower, while the Nasdaq shed another 0.9%. Volume in the NYSE was 22% higher, while volume in the Nasdaq rocketed 38% above the previous day’s level. Yesterday was the single highest volume day in the Nasdaq since April 30, which is quite bearish considering the index closed with a loss and near its intraday low. The Nasdaq Composite Index has now closed lower on 7 out of the past 9 sessions this month. Worse is the fact that 5 of the 7 losing days occurred on higher volume, technically meeting the definition of “distribution days.” While a healthy market can sustain 1 or 2 distribution days over the course of a few weeks, 5 days of institutional selling is undoubtedly going to cause a market to fall under severe selling pressure. The S&P 500 has also seen 4 distribution days during the same period.

On another bearish note, have you seen a daily chart of the Semiconductor (SOX) Index lately? If not, check out the chart below:

Is the Semiconductor Index out of business? Will we cease to stop using computers for the rest of time? Based on the price action of the SOX index over the past two weeks, it sure seems that way. Yesterday’s 4.5% decline in the index brought the cumulative loss to more than 13% during the past two weeks, since it last peaked on June 30. If you’re wondering why the Nasdaq has been so weak, blame it on the Semiconductor Index. Because the Semiconductor Index is so heavily weighted, the SOX typically leads the Nasdaq in both directions. Rarely will the Nasdaq show strength without the semis doing the same. So, if you’re wondering when the Nasdaq will begin to show signs of life, look to the SOX index for the answer.

I know it may sound redundant, but we really cannot stress enough the importance of being conservative with your trading decisions in the current environment. There is so much indecision out there and it would be very easy to get trapped on the wrong side of the market right now, regardless of which side you’re on. If you take a look at the daily chart of the Nasdaq, the recent indecision is represented by the long tails (“wicks”) on both sides of the candlesticks. When I see this type of action, it is a clear warning sign to cut back on both the frequency and share size of my trades:

If you’re having a challenging time in this environment, save yourself the stress and consider going to cash for a while, at least until earnings season has passed in another few weeks. At the very least, you may want to be hedged on both sides of the market in order to reduce your risk. This is the reason we are simultaneously short HHH, but long PPH. The plan is to profit from buying a sector that is poised for upside reversal, while being short a sector that has been showing relative weakness. Sticking to individual sectors is probably a better strategy than trying to trade the broad market ETFs right now.

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:


Open Positions:

    PPH long (from July 13) –
    bought 76.62, stop 75.80, target 78.20, unrealized points = + 0.03, unrealized P/L = + $3

    HHH short (from July 13) –
    shorted 57.48, stop 58.70, target 52.20, unrealized points = (0.22), unrealized P/L = ($44)


We remain long PPH and short HHH, both with the same stops.

Edited by Deron Wagner,
MTG Founder and