The Wagner Daily


The major indices broke their three-day losing streak, as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite each closed 0.4% higher last Friday. However, intraday trading action was indecisive and the major indices closed near the middle of their intraday ranges, as opposed to near their highs. Total market volume increased by 2% in the NYSE and 10% in the Nasdaq, which means Friday was a bullish “accumulation day.” Although the broad market sustained losses the previous day, it did so on declining volume. This means that the past two days have shown bullish price to volume ratios, although the indices did experience two “distribution days” last Tuesday and Wednesday.

Both the S&P 500 and Dow Jones Industrial Average broke support of their primary, intermediate-term uptrend lines last week. The Nasdaq Composite, however, showed relative strength and closed right on support of its uptrend line, which began with the low of August 2004. We have illustrated the uptrend line on the daily chart below (the thick blue line):

The Nasdaq should bounce higher off its trendline support over the next several days, but remember that resistance of the 200-day moving average looms overhead (the thick purple line). Therefore, don’t be too aggressive with new long positions. Furthermore, remember that the S&P 500 is now trading below support of its prior uptrend line, which may act as a weight on the Nasdaq. Technical analysis states that prior support becomes the new resistance once the support is broken. As such, expect the S&P to have a difficult time getting back above its prior uptrend line, which is illustrated on the chart below. Notice also how the 200-day moving average has converged with the uptrend line, which will provide even more resistance the index will need to contend with:

When the S&P and Nasdaq, two of the most important broad-based indices, get out of sync with each other, it often results in choppy trading conditions. In this case, the Nasdaq is likely to rally off support of its uptrend line, but the overhead resistance of the S&P 500 will probably prevent the rally from going very far. Conversely, the S&P 500 is not likely to drop very far as long as the Nasdaq holds above its uptrend line. The problem with this type of scenario is that it often makes it challenging to profit from swing trading because the market lacks clear direction and can easily stop out traders on both the long and short side of the markets. The easiest solution to the problem is to simply scale back on your trading operations by either shifting to a cash position or reducing the share size of new trade entries. Another way to increase your odds of success is to avoid trading the broad-based ETFs such as SPY, DIA, and QQQ. Instead, focus on sector-specific ETFs that move independent of the market. The best sector strategy is to short an index that is showing relative weakness to the broad market, or buy a sector that is showing relative strength. We presently are short HHH (Internet HOLDR), which closely follows the Internet Index ($GIN). On the daily chart below, notice how the $GIN closed last week below support of its primary uptrend line. It also formed a bearish “double top” at its highs:

Remember that quarterly earnings season is in full swing, and many important companies are reporting this week. After today’s close, tech behemoths IBM and Texas Instruments will be reporting their results. Ford Motor Company, EMC Corp., Motorola, and TASER International are some of the important names reporting tomorrow. Until earnings season passes, there is no reason to be overly aggressive with new positions.

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, new stop 61.35, target 57.15, unrealized points = (0.47), unrealized P/L = ($94)


Note the tighter stop above.

Edited by Deron Wagner,
MTG Founder and