The Wagner Daily


The broad market followed through on Tuesday’s rally with a vengeance, as each of the major indices again closed sharply higher yesterday, and on higher volume. Though the day began on relatively flat note, the S&P 500, Dow Jones Industrials, and Nasdaq Composite each entered into a steady and powerful intraday uptrend after the first 90 minutes of trading. Volume in the NYSE increased by 3% to its highest level since May 10, while volume in the Nasdaq was 14% higher than the previous day. The sudden rush of institutional interest that began on Tuesday has resulted in two consecutive “accumulation days” that have enabled both the S&P and Dow to trend smoothly higher since Monday’s lows were established. The Nasdaq lagged behind on Tuesday, the first day of the rally, but the index led the way yesterday and closed with an impressive 2.1% gain. Also, both the S&P 500 and Dow Jones Industrials gained more than 1% for the second consecutive day (1.3% and 1.1% respectively).

Coming into the current week, the Dow Jones Industrial Average was trading at a new low of the year, the S&P 500 Index had formed a “lower low” by breaking support of its September low, and the Nasdaq Composite was testing support of its primary uptrend line. On Monday, the broad market exhibited further bearish action by trading in a narrow range and consolidating at its lows of the prior day. However, the broad market rallied firmly higher on Tuesday, and on higher volume, pushing both the S&P and Dow back above their prior lows on the daily chart. This created some momentum that was likely to carry over into the next day’s session, but the ability of those indices to rally much higher was called into question due to overhead resistance of the 20, 50, and 200-day moving averages on the S&P 500. Nevertheless, the major indices again rallied sharply yesterday, with the S&P 500 and Nasdaq Composite both ignoring powerful resistance of their 200-day moving averages. Furthermore, volume again increased in the NYSE to its best level of the past six months! It sure has been an interesting and unusual week thus far, and the week is not even over yet. Below is a daily chart of the S&P 500 that illustrates how the index ignored resistance of all three of its primary moving averages yesterday:

Like the S&P, the Nasdaq also pushed through resistance of its 200-day moving average yesterday, which acted as resistance during the prior rally attempt last week. The index also closed within striking distance of setting a new multi-month high as well. Take a look:

For the past several weeks, we have been advocating a largely cash position due to the indecisive nature of the broad market, along with the divergence of the major indices. However, due to the powerful rally of the past two days and the corresponding break of key technical resistance levels, we now feel it is safer to begin moving some cash back into the long side of the market. Given the gains of the past two days, it would be normal to see a small price correction in the next day or two. However, given the broad-based nature and high volume levels of the recent rally, we would view any mild price retracement as an opportunity to enter new long positions in an attempt to catch the next leg higher. Even more bullish are the longer-term weekly charts of both the S&P and Nasdaq, both of which are poised to break their downtrend lines that have been in place throughout most of 2004. We will take a look at those weekly charts in tomorrow’s newsletter.

Today’s watch list:

SMH – Semiconductor HOLDR

Trigger = above 32.28
(above yesterday’s high)
Target = 35.90 (resistance of the 200-day MA)

Stop = 31.30 (below the 40-MA/60 min.)

Notes = The Semiconductor Index is poised to break resistance of its downtrend, which has been in place for most of the year. The break of the downtrend line in SMH also corresponds to a break of the prior highs, as you can see from the horizontal line above. If the index clears this level, it should result in a powerful rally due to a break of both horizontal price resistance AND a weekly downtrend line.

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:

RTH short (from Oct. 25) –
shorted 90.63, covered 92.32, points = (1.69), net P/L = ($172)
Open Positions:



RTH was stopped out.

Edited by Deron Wagner,
MTG Founder and