The Wagner Daily


If you only looked at the minor percentage changes in the closing prices of the major indices, you could easily have assumed there was a lack of volatility in yesterday’s trading session. After all, the S&P 500 closed only 0.1% higher, the Dow Jones 0.3% higher, and the Nasdaq Composite 0.6% lower. However, yesterday was far from a boring session, and it provided plenty of volatility in both directions. Yesterday’s price action was a bit unusual, so we’ll analyze what occurred in more detail.

During the first half of the day, the technical picture looked pretty bleak because each of the major indices were trending steadily lower from their opening prices. By mid-day, both the S&P 500 and Nasdaq Composite had broken below their respective lows of the previous day. Given that the previous day was the first higher volume “up” day in nearly a month, it was quite bearish that the major indices quickly sold off and completely gave back all of the gains. The bearish picture was compounded by the fact that volume in the Nasdaq was coming in 11% higher than the previous day, as the Nasdaq broke to a new low at 12:30 pm EST. However, just like the previous day, buyers appeared within the final ninety minutes of trading and enabled the major indices to not only recover the intraday losses, but to also rally up to new intraday highs. The S&P 500 Index even rallied above the high of the previous day, despite breaking its low only a few hours earlier. The 15-minute intraday chart of the S&P 500 Index below illustrates this volatility in which the bears maintained control in the morning, but the bulls took control in the afternoon:

Despite the bullish reversal in the afternoon, volume was the one thing that lacked, as volume in the NYSE still came in 4% lighter than the previous day. Volume in the Nasdaq increased by 4%, but the index still closed slightly negative. Had yesterday afternoon’s reversal coincided with a surge in volume, it would have represented two consecutive days of higher volume buying, which would given us more confidence to buy the market now. But the increase in volume was not to be, so this continues to remind us that caution is in order on the long side of the market.

Roller-coaster type sessions such as yesterday’s are ideal for intraday traders because the wide trading ranges provide a lot of opportunities to profit from both sides of the market. However, it is conversely a tricky environment for “swing traders,” who usually profit from riding trends for a period of several days. One way to solve this problem is to make sure you are hedged on both sides of the market, by simultaneously being long the sectors and stocks with the most relative strength, while sitting short the weakest ones. The other solution, of course, is to remain on the sidelines, in cash, until the market determines the direction of its next major move. Either way, you certainly do not want to fall in love with one side of the market or the other because volatility often reigns supreme during pivotal support/resistance levels in the broad market.

Going into today’s session, we will be closely watching the same resistance levels we discussed in yesterday’s newsletter. To refresh your mind, we are specifically referring to the primary downtrend lines of the major indices, which began with the June 30 highs and connected with the highs of July 21. For the S&P 500 Index, the downtrend line loosely converges with resistance of the 200-day moving average, which is at the 1106 area (11 points above yesterday’s close). Resistance of the Nasdaq’s downtrend line will be found around the 1,887 area. Interestingly, the Dow Jones Industrial Average actually tested resistance of its downtrend line during yesterday’s session. A break above the 10,150 area would represent a break of that downtrend line. We recommend you review yesterday’s newsletter in order to see those downtrend lines. Also review yesterday’s commentary on how to play a potential break of the downtrend.

Today’s watch list:

SMH – Semiconductor HOLDR

Trigger = above 31.80 (above yesterday’s high and hourly downtrend line)
Target = 33.55 (resistance of the prior “swing high”)
Stop = 30.90 (below yesterday’s close)

Notes = SMH was on our watchlist for yesterday, but did not hit our trigger price. We still like the trade setup, so are watching it today for potential entry point, but with a lower trigger price for entry. Just like two weeks ago, we are looking to play a short-term bounce in the Semiconductor index, but only after SMH confirms it has put in a short-term bottom. This would occur on a break above yesterday’s high, which also converges with the hourly downtrend line (see chart above).

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 did not trigger, so we remain flat.

Edited by Deron Wagner,
MTG Founder and