The Wagner Daily


The major indices consolidated in a narrow range yesterday, as the broad market paused to absorb its recent gains. The S&P 500 Index opened flat and subsequently traded in a tight, 5-point range before closing with a fractional loss of 0.1%. The Nasdaq Composite followed a similar intraday pattern, but the index showed slight relative strength and closed 0.2% higher, its sixth consecutive day of gains! The Dow Jones Industrial Average once again lagged behind, drifted modestly lower, and closed with a 0.4% loss. Most of the tech-related sectors closed near the flat line. Insurance ($IUX) and Home Construction ($DJUSHB) showed the biggest losses, while the Gold and Silver Mining Index ($XAU) was the clear winner and gained 2.5% yesterday. The Oil Index ($XOI) also maintained its recent strength and closed with a 1.2% gain.

Volume in both the NYSE and Nasdaq declined by 7% over the previous day. This broke the string of five consecutive “accumulation days” in the Nasdaq, which was quite impressive to begin with. Since the S&P and Dow both closed lower, the decline in volume is exactly what should have occurred, as a healthy market will always show declining volume on the sideways consolidation days. An increase in volume on a consolidation day indicates “churning,” which is marked by a lot of turnover, but no corresponding price movement. Conversely, a decline in volume on a consolidation day is bullish because it means the buyers simply took a break, but the sellers did not step in.

The Nasdaq Composite continues to hold firmly near the highs of its recent rally, but remember that the 200-day MA continues to lurk as resistance overhead. Obviously, this is a key level to watch because a break above the 200-day MA would be technically very significant:

Looking at the daily chart of the S&P 500, you will notice the index continues to hold above support of its prior high from last month, just over the 1,130 area. The September highs were formerly acting as resistance, but has now become the new support. As long as the S&P remains above this level, there is no reason to be aggressively short the broad market now:

Remember that the S&P 500 continues to trade within close proximity of its WEEKLY downtrend line, which has been intact since the highs of March 2004. If the index closes this week at or above yesterday’s closing price, it will have broken above the weekly downtrend line, but it is still too early to declare a solid break of the downtrend line. Because the 7-month downtrend line is such a powerful pivot point, we are likely to see either a strong breakout OR a big move to the downside, which would simply be a resumption of the downtrend line. Therefore, use caution with entering new positions on BOTH sides of the market and, as always, keep firm stops in place.

Today’s watch list:

There are no new plays for today, but we are now long SMH, which we bought via intraday e-mail alert yesterday.

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 Oct. 5) –
    bought 31.78, stop 30.90, target 33.70, unrealized points = 0.13, unrealized P/L = + $39


Per intraday e-mail alert, we re-entered SMH for swing yesterday. We expect the SOX to resume its upward trend after a short correction.

Edited by Deron Wagner,
MTG Founder and