The Wagner Daily


A solid corporate earnings report from Dell caused the Nasdaq Composite to gap nearly 1% higher Friday morning, but the buyers once again disappeared and the index drifted lower, eventually closing the day with only a 0.3% gain. Both the S&P 500 Index and Dow Jones Industrial Average followed similar patterns, but each index only gained 0.1% on Friday. Volume in both the NYSE and Nasdaq was approximately 17% lower than the previous day. This means the broad market continued its bearish pattern of declining volume on the “up” days, but increased volume on the “down” days. Interestingly, the major indices have yet to record a single day of higher volume gains in the month of August.

Although both the S&P 500 and Dow Jones Industrial Average closed last week with nominal gains, the Nasdaq Composite shed another 1.1%. The Nasdaq is now 18% below its high of 2004, which was set on January 26. After closing lower in six of the last seven weeks, the index is also 14% below its most recent significant high that was set on June 30. Stocks and indices trading at new 52-week highs generally continue to go much higher, simply due to the lack of overhead supply that is created from a prior area of price resistance. Conversely, stocks and indices trading at new lows will often continue to trade lower due to a lack of prior price support. The fact that the Nasdaq keeps setting new lows of the year is a big reason the index is having trouble sustaining any type of rally attempt. However, the one bright spot is that the Nasdaq has sold off down to support of a major uptrend line that began with the low of October 2002 and intersects with the low of March 2003.. Below is a multi-year, monthly chart of the Nasdaq that illustrates support of this uptrend line:

Because this trendline has been intact for nearly two years, odds are good that it will provide at least some short-term price support to the Nasdaq over the next several weeks. But you also need to remember that we’re looking at a monthly chart, not a shorter-term daily chart. This means the index could easily take a month or more before it bounces off this trendline. Nevertheless, it’s very important you are aware of this trendline because you don’t want to be caught heavily short if the index resumes that uptrend line. Until the Nasdaq proves otherwise, we have to assume the major, long-term uptrend will continue.

Unfortunately, the long-term charts of both the S&P 500 and Dow Jones Industrial Average show that both indices could correct much more before they come into any major areas of support. Both are sitting above Fibonacci support areas and are well above the same trendline support the Nasdaq now has. This means we could begin to see a situation where the Nasdaq attempts to rally, but both the S&P and Dow lag behind due to a lack of major price support. When the major indices are not in sync with each other, trading conditions often become choppy, but this is a very real possibility. For now, it is our assessment that your best odds are to hedge yourself by simultaneously being short some of the Dow and S&P-related sectors and stocks, while beginning to test the water on the long side of the Nasdaq’s tech-related issues. As always, continue to watch the price and volume relationship of the market because no rally in the Nasdaq will be sustainable if it is not backed by an increase in volume.

Today’s watch list:

SMH – Semiconductor HOLDR

Trigger = above 29.07 (above Friday’s high)
Target = 31.30 (resistance of the 20-day MA)
Stop = 28.28 (below Friday’s low)

Notes = The Semiconductor sector has been beaten blind lately, but showed a lot of strength into last Friday’s close, as SMH closed at its intraday high and formed a bullish “hammer” candlestick formation on its daily chart. SMH also closed near support of the lower trend channel of its downtrend. Therefore, we expect to see follow-through for several days to the upside. We’re not interested in trying to catch a major bottom, but are simply trading a technical bounce in the index. Note we will only buy SMH if it trades above Friday’s high, as listed 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:

    PPH long (from Aug. 11) –
    bought 72.70, new stop 72.20, target 74.65, unrealized points = (0.01), unrealized P/L = ($1)


We remain long PPH with the same stop.

Edited by Deron Wagner,
MTG Founder and