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The Wagner Daily


Commentary:

Yesterday’s broad market action was the opposite of the previous day, as the major indices rallied during the first hour of trading, but chopped around in a range and drifted lower throughout the remainder of the day. When the closing bell rang, both the S&P and Nasdaq closed in the middle of their respective ranges from the previous day, while the Dow continued to show relative weakness and closed near the previous day’s low. Volume in the NYSE was 11% lighter than the previous day, while volume in the Nasdaq declined by 15%. Because the indices simply continued to consolidate and volume came in lighter, yesterday’s action was pretty much a non-event. Regardless, the Nasdaq Composite gained 0.4%, the S&P 500 gained 0.3%, and the Dow managed a 0.1% increase.

Taking an updated look at the daily chart of the Nasdaq Composite, it continues to look pretty healthy in the short-term. The Nasdaq rallied above the 1,896 area, which was the prior resistance from the high of July 30, on September 13. Since then, the 1,896 area has acted perfectly as the new support level during the mild correction. We have illustrated this horizontal level of price support on the daily chart of the Nasdaq below:

Looking at the chart above, it is also noteworthy that the 20-day moving average has crossed up above the 50-day moving average of the Nasdaq (as highlighted on the chart). When major moving average crossovers occur, it often indicates an intermediate-term change in trend. In this case, it could indicate a change to an intermediate-term uptrend. As long as the Nasdaq continues to hold above the September 15 low of 1,892, we remain bullish on the short-term direction of the Nasdaq. As discussed in yesterday’s newsletter, remember also that the Nasdaq only retraced 38.2% of its most recent rally.

While the Nasdaq looks strong, the picture in the S&P 500 is more mixed. The correction of September 15 caused the index to close below support of its uptrend line that was formerly intact for one month. When the S&P attempted to rally yesterday, that uptrend line acted as resistance. Remember that prior support becomes the new resistance level once the support is broken. However, despite the break of the uptrend line, support of the 200-day moving average remains eight points below yesterday’s close. The daily chart of the S&P illustrates the break of the prior uptrend line:

Like the S&P, the Dow also broke below its uptrend line from the August low when it sold off on September 15. However, the picture in the Dow remains more bearish than the S&P because the Dow has now closed the last two sessions below its 200-day moving average. Interestingly, the 200-day moving average acted perfectly as resistance when the Dow attempted to rally yesterday. Because of this we remain short DIA (Dow Jones Industrial Average Tracking Stock). Here’s the daily chart of the Dow:

As you can see from the daily charts of the major indices above, the short-term picture is quite mixed right now. While the Nasdaq continues to look healthy, both the S&P and Dow are going to have trouble with resistance from their prior uptrend lines. The Dow will also have to contend with the 200-day MA. Maintaining a mixed bias of being long the tech-related sectors and short the blue chips is probably a wise way to play it right now.


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:

    (none)

Open Positions:

    SMH long (HALF position, from Sept. 10) –
    bought 29.56, stop 29.56, new target 32.95, unrealized points = + 0.52, unrealized P/L = + $76

    DIA short (from Sept. 9) –
    shorted 103.01, stop 103.31, target 100.95, unrealized points = + 0.26, unrealized P/L = + $52

Notes:

No changes to the stops in either position.

Edited by Deron Wagner,
MTG Founder and
President

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