The Wagner Daily


The broad market began the day with an opening gap down to near the previous day’s lows, sold off for the first hour, but stabilized and traded in a sideways range for the remainder of the day. After a four-day rally that resulted in a 3.5% gain, the Nasdaq Composite gave back 1.0% yesterday. Both the S&P 500 and Dow Jones Industrials turned in similar results and lost 0.7% and 0.8% respectively. Volume in both the NYSE and Nasdaq was approximately 4% higher than the previous day, which means that yesterday was technically a bearish “distribution day.” It was the third day within the past two weeks that the Nasdaq has closed lower AND on higher volume, which meets the definition of a “distribution day.” Nevertheless, bear in mind that the prior four days in the Nasdaq, each of which closed higher, have occurred on volume that was above average levels. Therefore, one day of correction does not enable us to say that institutions were heavily selling.

Although yesterday’s losses in each broad-based index were nearly the same, remember that the Nasdaq had rallied much more than the S&P and Dow in the preceding days. As such, the Nasdaq gave back a lower percentage of its gains than did the S&P and Dow. When a market is trending, it is important to measure the degree of any price corrections because it will often indicate whether or not the price retracement was a healthy correction. As long-time subscribers already know, we often use Fibonacci as the means to measure how much an index has retraced, and hence whether or not the direction of the trend is likely to continue. (If you are not already familiar with Fibonacci, click here to read a brief article that explains the basic concept.) Interestingly, yesterday’s low in the Nasdaq Composite was exactly equal to a 38.2% Fibonacci retracement from the low of September 9, when the short-term rally began, to the high of September 13, the peak of the four-day rally. The hourly chart of the Nasdaq below illustrates this:

When an index retraces less than 50% of its trend, it is considered to be a healthy price retracement, and the trend will usually resume shortly thereafter. However, if an index retraces beyond the 61.8% Fibonacci level, the trend will often reverse. Because the retracement on the Nasdaq was relatively shallow, we remain bullish on the short-term trend of the Nasdaq, as well as the Semis. The Nasdaq is also holding firmly above support of its 50-day moving average, which it rallied above on September 10. Conversely, the Dow Jones Industrial Average, which failed to rally with the Nasdaq during the past week, closed yesterday at a new low for the past eight sessions. The index also closed below support of its 200-day moving average. Below is a daily chart of the Dow that illustrates the relative weakness the index has been exhibiting:

Because the Dow broke to a new “swing” low, but the Nasdaq only retraced 38.2% of its rally, we continue to have the same bias that we discussed in the September 9 newsletter. We are bullish on the short-term trend of the Nasdaq, but mildly bearish on the Dow. Because of this, we continue to hold our long position in SMH and short position in DIA.

Today’s watch list:

There are no new plays for today, although we remain long SMH (half position) and short DIA from last week.

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 (HALF position, from Sept. 10) –
    bought 29.56, stop 29.56, new target 32.95, unrealized points = + 0.58, unrealized P/L = + $85

    DIA short (from Sept. 9) –
    shorted 103.01, new stop 103.31, target 100.95, unrealized points = + 0.47, unrealized P/L = + $94


We remain long half position of SMH with the same stop, but have lowered the stop on the DIA short position.

Edited by Deron Wagner,
MTG Founder and