The Wagner Daily


After putting the brakes on a 5-day losing streak the previous day, the Nasdaq Composite followed through with a solid 1.8% gain yesterday. Both the S&P 500 Index and Dow Jones Industrial Average also closed higher, but lagged behind the Nasdaq and closed only 0.7% and 0.5% higher respectively. Unfortunately, volume in the Nasdaq was 6% lower than the previous day, so we did not see any solid accumulation. However, volume in the NYSE rose by 9%.

For the last couple of days, the major indices have been acting exactly as expected which, for the bulls, is not that great. As anticipated, the Nasdaq found support at its prior low from May, which also coincided with the 200-week moving average. However, volume has declined over the past two days, even as the index closed higher. In order for any type of rally to be sustained, volume would need to suddenly surge over the levels that we saw when the Nasdaq was declining last week. So far, that is simply not to be. Therefore, we continue to view any bounce in the Nasdaq as a chance to unload any long positions you may have gotten stuck with, and possibly to initiate new short positions, particularly in the Internet-related stocks. Per yesterday’s newsletter, we bought SMH (Semiconductor ETF) when it rallied above the previous day’s high, but we do not intend to stay with the position for a long time. We are simply playing a quick bounce.

The good news for the S&P 500 Index is that yesterday’s gains put the index back above its 200-day moving average, of which it traded below only two days. The bad news is the index still needs to contend with resistance of the prior uptrend line from the lows of May, which it broke below last week. Note the close back above the 200-day MA:

One sector that bears watching right now is the Home Construction Index ($DJUSHB). Although the daily chart is a choppy mess, the longer-term weekly chart is showing the potential for a very large break of support. This index rallied more than 150% from its trough to peak during the past three years and now appears to be poised for a major correction, much like the Internet Index we discussed yesterday. On the weekly chart below, take note of three things: 1.) red line represent most recent uptrend that was broken and now will act as new resistance 2.) Blue line represents primary uptrend line from the low of 2001 and is where we expect the index to eventually drop to 3.) Horizontal purple line represents support of a triple bottom the index has put in:

As you can see, a break below the horizontal support at the 530 level could send the index sharply lower. It certainly bears watching, and we have already taken a short position in Ryland (RYL), in the MTG Intraday Real-Time Room. Other stocks in the same sector to take a look at are, in no particular order: BZH, CTX, DHI, TOL, KBH. If you enter short positions, make sure you reduce your share size to allow for wider stop because the index has a tendency to be quite volatile at times.

Today’s watch list:

There are no new plays for today.

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:

    SMH long (from July 20) –
    bought 32.56, stop 32.10, target 33.50, unrealized points = + 0.34, unrealized P/L = + $102


Per yesterday’s newsletter, we are now long SMH with an unrealized gain. As of the time of this writing, SMH is gapping up to our target price in the pre-market. Therefore, we will look to sell SMH into this opening gap and lock in our profits.

Edited by Deron Wagner,
MTG Founder and