The Wagner Daily


The major indices chopped around in a narrow range for the third consecutive day last Friday, but each index closed in positive territory. The S&P 500 Index gained 0.4% for the day, which was also the same amount it gained for the week. The S&P has closed higher in each of the past six weeks, and Friday’s closing price was also the highest since July 1. The Dow Jones Industrial Average also gained 0.4% on Friday, but lost 0.3% for the week. The Dow also closed the week back below its 200-day moving average, which it broke below on September 15. The Nasdaq Composite Index gained 0.3% on Friday and 0.8% for the week. Volume in the Nasdaq surged 24% higher, while volume in the NYSE also powered 29% higher than the previous day. While the broad-based gains on higher volume was bullish, bear in mind that the volume surge was attributed largely to the quadruple witching options expiration last Friday. Nevertheless, volume in the Nasdaq has come in above its 50-day average level in six of the last seven sessions. It’s nice to see the return of institutional interest in the markets.

As we enter the new week, our overall thoughts remain the same as during the past two weeks. Generally, we expect to see strength in the Nasdaq, particularly the Semis, while the S&P, and particularly the Dow, are likely to lag behind. The Semiconductor Index ($SOX), which began rallying off its lows on September 9, acted great last week. After an 11% gain from the three sessions spanning September 9 – 13, the index only retraced 3.3% of that gain when it corrected last week, nearly equivalent to only a 38.2% Fibonacci correction. The $SOX traded sideways for two days, holding above the 20-day moving average as support, then rallied on Friday to close above its hourly downtrend line. This means that the $SOX is likely to push through its 50-day moving average resistance and rally above last week’s high. The daily chart of the $SOX index below illustrates last week’s orderly pullback from its September 13 high:

On the chart above, notice how the 20-day moving average, which was formerly resistance, has now become the new support level. The 50-day moving average stopped the rally attempt when the $SOX first tested it, but the index is likely to push through it in the coming days. As long as the $SOX holds above its 20-day moving average, we maintain a bullish bias to the short-term direction of the Semis. As such, we remain long SMH (Semiconductor HOLDR), with a solid unrealized profit since our September 10 entry.

The broader-based Nasdaq Composite also continues to act well based on its daily chart. Like the $SOX, the Nasdaq also retraced only one-third of its recent rally and held support above its prior high of 1,893. The 20-day moving average has also crossed up through the 50-day moving average, which is a bullish signal. The daily chart below illustrates this:

As the chart above illustrates, the next major resistance for the Nasdaq is the 200-day moving average, currently at 1,966. We continue to believe the Nasdaq should at least rally up to test the 200-day MA in the short-term. The only thing that may be a drag on the Nasdaq is the relative weakness in the Dow, which was the only one of the broad-based indices to close lower last week. It also failed to hold above its 200-day MA. We stopped out of the DIA short position by a few pennies, but will consider re-shorting if the Dow fails to get back above the 200-day MA.

Today’s watch list:

We plan on adding to the half position of SMH when/if it rallies above its 50-day MA, but we will send e-mail alert upon doing so.

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:

    DIA short (from Sept. 9) –
    shorted 103.01, closed 103.23, points = (0.22), net P/L = ($47)

Open Positions:

    SMH long (HALF position, from Sept. 10) –
    bought 29.56, stop 29.56, new target 32.95, unrealized points = + 1.18, unrealized P/L = + $177


DIA hit our trailing stop on Friday, but we remain long half position of SMH.

Edited by Deron Wagner,
MTG Founder and