The Wagner Daily


The broad market continued its corrective action that began on October 7, as each of the major indices once again closed firmly lower. Both the S&P 500 and Nasdaq Composite closed 0.9% lower, while the Dow Jones Industrial Average shed 1.1%. New York Attorney General Eliot Spitzer announced an investigation into a handful of leading insurance companies, accusing them of fraudulent financial reporting. The news sparked a dramatic selloff in the S&P Insurance Index ($IUX), which dropped a whopping 6.8%! Dow Component AIG lost 10% yesterday and was obviously a major drag on the Dow Jones. The tech sectors did not fare much better, as a negative earnings report from SanDisk triggered a 3.3% closing decline in the Semiconductor Index ($SOX).

The one piece of good news is that yesterday’s losses occurred on declining volume. Total market volume in the NYSE was 4% lighter than the previous day, while volume in the Nasdaq declined by 11%. This was a welcome change from the previous two days, which saw losses on higher volume. Nevertheless, volume in both exchanges still came in above average levels and the Nasdaq has now closed lower in five of the past six sessions.

The S&P 500 Index broke support of its primary uptrend line two days ago, but we cannot yet say that the index has entered into an intermediate-term downtrend until the prior “swing low” on the daily chart is broken. In other words, a trend reversal would only occur if a “lower low” and subsequent “lower high” are formed. If you look at the daily chart of the S&P, you will notice that it closed just above support of its prior low, at 1,101:

The prior low of 1,101 acted as support yesterday and remains an important level to watch going into today. It’s quite possible that a “double bottom” will form at the 1,101 area, which could cause the S&P to bounce higher for a few days. But, remember there is a lot of overhead supply that has been created from the selloff the past week. Combined with the break of the daily downtrend line two days ago, it’s likely that a bounce would be short-lived.

We cannot declare a new downtrend in the S&P, but the prior uptrend is no longer intact either. This means we are likely to enter into a period of range-bound, choppy trading, the kind that is never fun for short-term traders. Astute professional traders simply reduce their share size and quantity of trades in such an environment, and we recommend you do the same. There’s no reason to be aggressive in a market that is now showing mixed signals in the intermediate-term. Another batch of corporate earnings that will be released next week gives us another reason to be conservative here. Remember that cash is always king when unsure of market direction. Patient traders will be rewarded.

Today’s watch list:

There are no new ETF plays for today.

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:

    HHH short (from Oct. 12) –
    shorted 59.72, stop 61.85, target 57.15, unrealized points = (1.13), unrealized P/L = ($226)


No changes.

Edited by Deron Wagner,
MTG Founder and