The Wagner Daily


As we often see on the subsequent day following a trending day, the major indices corrected modestly, which allowed the broad market to digest its recent gains. The Nasdaq Composite Index, which rallied 2.0% the previous day, declined by 0.6%. The S&P 500 and Dow Jones Industrial Average each closed 0.4% lower, a one-third price correction from their 1.2% gains the prior day. Volume in the NYSE declined by 2%, while volume in the Nasdaq was 10% lower than the previous day. For the past four days, the S&P 500 has demonstrated a bullish price to volume relationship, as each of the three “up” days occurred on higher volume, while the only down day, yesterday, was marked by lighter volume. Overall, volume still remains below average levels, but we have been seeing a bullish trend in the price to volume relationship of the broad market since the beginning of this week.

Yesterday’s price correction in the broad market was textbook in that each of the major indices retraced exactly to key support levels before stabilizing and bouncing into the close. Yesterday’s low in the S&P 500, for example, coincided with support of the prior day’s consolidation, as well as the high of two days prior. The chart below illustrates this area of horizontal price support at the 1086 area:

Similarly, the Nasdaq Composite also found support at the prior day’s consolidation level, although the index held well above the high of two days prior:

Looking at an hourly chart, you can also see how the Nasdaq found support at the lower channel of its uptrend line from the low of August 13. Interestingly, the 20-period moving average also converged with this uptrend line. Take a look:

In yesterday’s Wagner Daily, we wrote that the prior downtrend line on the daily chart of the S&P 500 should now act as the new support level, which is exactly what occurred. Yesterday’s intraday low perfectly coincided with support of that prior downtrend line. The daily chart below illustrates how a prior resistance level becomes the new support level after the resistance is broken:

The point of showing you all the charts above is quite simply to illustrate that the broad-based indices have been following their trendlines and technical analysis exactly as they should during the past week. Higher than average volume is the only thing that has been lacking, but that is also the most important element required for an uptrend to be sustained. Whether or not the lack of volume is the result of seasonal activity is yet to be determined. As long as the major indices remain above their prior downtrend lines on their daily charts, we will continue to remain cautiously on the long side of the market. However, select sectors may be setting up for short-entries once again. We will re-assess at the beginning of next week.

Today’s watch list:

IWM – Russell 2000 Index Tracking Stock

Trigger = above 107.65 (above yesterday’s close)
Target = 110.20 (resistance of prior high from Aug. 2)
Stop = 106.30 (below yesterday’s low)

Notes = The Small Cap index has been showing the most relative strength of the broad-based ETFs during the past week, so we are looking to buy IWM with a target of the prior high.

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:

    PPH long (from Aug. 11) –
    bought 72.70, sold 74.36, points = + 1.66, net P/L = + $163

Open Positions:

    SMH long (from Aug. 16) –
    bought 29.10, new stop 29.90, target 31.30, unrealized points = + 1.14, unrealized P/L = + $342


PPH hit our trailing stop when it traded below its 20 minute low yesterday, but we remain long SMH with a new stop.

Edited by Deron Wagner,
MTG Founder and