The Wagner Daily


The broad market closed with marginal gains last Friday, but volume once again declined sharply. The S&P 500 and Dow Jones Industrials both closed 0.2% higher, while the Nasdaq Composite gained 0.5% on Friday. However, volume in both the NYSE and Nasdaq limped in approximately 36% below their 50-day average levels. Last Thursday’s volume in both the NYSE and Nasdaq were the lowest levels of the year, but trading volume in both indices set new lows of the year on Friday, their lowest levels since the half-day session of December 26. The steep decline in turnover during the last two trading days can be attributed to the last week of August traditionally being a peak period of Summer vacations for many traders. As we have mentioned several times during the past week, we don’t expect any rapid increase in volume until the conclusion of Labor Day weekend.

If you’ve been following our advice and remain long the broad market, this may be a good time to tighten your stops in order to protect your profits. We say this because the S&P 500 Index has rallied up to the initial price target we predicted after the primary downtrend line was broken on August 18. That price target correlated to the prior high from July, which is exactly where the S&P 500 closed last Friday. Furthermore, resistance of the 200-day moving average is only several points above. Below is a daily chart of the S&P 500 Index that illustrates how the S&P has achieved our price target by rallying into resistance of both its prior high from July and its 200-day MA:

As you probably know, the 200-day moving average usually acts as a major support or resistance level whenever the price of an index or stock rallies or drops to it. Rarely will an index push through overhead resistance of a 200-day MA on its first attempt, without at least correcting a bit first. When you combine resistance of the 200-day MA with the fact that the S&P 500 has closed higher in nine of the last eleven sessions, it becomes even more likely we will see at least a short-term correction in the coming week. The first area of support should now be the 50-day MA, around the 1,104 area. Below that, we could see a retracement down to the 20-day MA, around 1,087.

Like the S&P 500, the Dow Jones Industrial Average also closed last week right at resistance of its prior high from July, at the 10,200 level. The 200-day MA, however, is still about 50 points above Friday’s closing price. Take a look:

Both the S&P and Dow Jones broke above their downtrend lines on August 18, but neither index will technically enter into a new uptrend unless the prior highs from July, illustrated in the charts above, are broken. “Higher lows” have been set, but “higher highs” have not yet been established on the daily charts. Therefore, the coming week will likely be a “make or break” point for both indices. While both the S&P and Dow have resistance of their prior highs and their 200-day MAs, the Nasdaq Composite, which was formerly lagging the other indices, may still have a bit more upside in the short-term. We anticipate the Nasdaq should rally at least to its prior high of 1,893, which also converges with the 50-day moving average. Specifically, we feel the Semiconductor (SOX) Index will show the most relative strength in the coming days. The daily chart of the Nasdaq below illustrates our price target and next major resistance level:

Because the major indices closed near their highs of last week, there are not yet any clear signals to heavily short the market. You could, however, dip a toe in the water by shorting SPY (S&P 500 Index) in anticipation of a correction at current resistance levels. If you do so, make sure you keep a tight stop just over the 200-day MA because an unexpected rally above that level could generate quite a bit of upside momentum. If, however, you’re already long, just continue trailing your stops tighter. But, as for new long positions, we would rather stand on the sidelines and wait patiently, especially until volume returns to the markets. The one exception is the Gold and Silver Mining Index, which we remain long per last week’s analysis and weekly trendline breakout. Whether you’re long, short, or in cash right now, remember to always Trade what you see, not what you think!

Today’s watch list:

There are no new trades for today, as volume is too light to give us any clear, confirmed signals. We will probably maintain a light stance with new positions until after the Labor Day holiday, which is when we expect volume to return.

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 Aug. 25) –
    bought 30.16, stop 29.49, unrealized points = 0.00, unrealized P/L = $0


We remain long SMM with the same stop from last Friday.

Edited by Deron Wagner,
MTG Founder and