The Wagner Daily | August 25, 2004

Commentary:

Like the previous day, the major indices once again traded in a choppy, mostly sideways range and closed with mixed results. The Nasdaq Composite closed with a small loss of 0.1%, the S&P 500 closed flat, and the Dow Jones Industrial Average gained 0.3%. Total market volume in both the NYSE and Nasdaq increased by 7%, but that’s not very impressive considering that the previous day saw the lightest NYSE volume of the year. For the past eight days, volume has come in below its 50-day average and that pattern is likely to continue until after the Labor Day holiday. Only at that time will we know whether the broad market will be able to retain its gains of the past past two weeks.

Because the broad market has remained at essentially the same price levels for the past two days, the technical picture has not changed much since the thorough analysis we provided last week. However, a few short-term support and resistance levels have formed on the major indices, which you can follow in order to determine the likely health of any individual stocks or ETFs you may be holding. Beginning with the Nasdaq Composite, support will be found at the 20-day moving average, which formerly acted as resistance. The 20-day MA is at the 1822 level, which is just below yesterday’s low. Short-term resistance is around the highs of the past two days, at the 1850 area. If the Nasdaq pushes through 1850, we expect a subsequent rally up to the 1895 – 1900 level, which represents resistance from the prior high of July, as well as the 50-day moving average.

On the S&P 500 Index, support will first be found at yesterday’s low of 1092, then at the 20-day moving average, currently at 1086. For the past three days, resistance has been solid at the 1100 level. If the S&P manages to push through the 1100 level today, it will again find resistance at the 1105 area, which is its 50-day moving average. Needless to say, it will probably take a sharp increase in volume in order to push through the 1100 – 1105 area convincingly. The chart of the S&P below illustrates these support and resistance levels:

Finally, you may want to keep an eye on the Semiconductor ($SOX) Index over the next few days. As you may recall, the $SOX index broke above its primary downtrend line on August 18 and has been trading above it since that date. However, the index has now pulled back down to its prior downtrend line, which should act as the new support level. Take a look:

Because of yesterday’s price correction in the Semis, you may want to consider buying SMH, the ETF that tracks the Semiconductor Index. We closed the SMH long position yesterday morning when it hit our trailing stop, but we now have the opportunity to re-enter the position at a much better price. As such, we feel there is a positive risk/reward of buying/re-buying SMH now. As always, make sure you place a stop below support of the prior downtrend line.

Today’s watch list:

SMH – Semiconductor HOLDR
Long

Trigger = above 30.15 (above hourly trendline resistance)
Target = 31.95 (38.2% Fibo retracement from June 30 high to Aug. 13 low)
Stop = 29.49 (below yesterday’s low)

Notes = See notes above regarding pullback to support on the SOX index. Note this is a potential trade re-entry, as we already closed our former SMH long position at a profit.

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:

net P/L = + $390

IWM long (from Aug. 20) –
bought 107.66, sold 108.82, points = + 1.16, net P/L = + $114

Open Positions:

(none)

Notes:

Both SMH and IWM hit their trailing stops yesterday, locking in a solid gain in both positions. We are now flat the ETFs.

Edited by Deron Wagner,
MTG Founder and
President