The Wagner Daily | November 2, 2004

Commentary:

The major indices maintained their holding pattern for the third consecutive day, as institutional market participation appears to be restrained until after today’s Presidential election. The S&P 500 Index closed flat yesterday, while the Nasdaq Composite gained 0.2%. Interestingly, that was exactly the opposite of how those two indices closed in the prior session of October 29. The Dow Jones Industrial Average showed slight relative strength and closed 0.3% higher yesterday. Volume in both the NYSE and Nasdaq came in approximately 7% lower than the previous day’s levels, which was not surprising given the multi-day consolidation the broad market is holding.

When comparing the daily and weekly charts of the S&P 500, we noticed that the index is stuck at resistance on its daily chart, but just broke above resistance on its weekly. On the daily chart, the S&P has been stuck at resistance of its prior uptrend line from the August low. Remember that prior support, such as an uptrend line, becomes the new resistance level once that support is broken. On the weekly chart, however, the index closed last week above key resistance of its primary downtrend line from the March 2004 high. Below, we have annotated both the break above trendline resistance on the weekly chart and the current trendline resistance on the daily chart:

The above charts are a good example of the importance of always studying multiple time frames when doing your research. The most ideal scenario is for the trend to confirm itself on all time frames. When it does not, however, the price action often becomes a bit choppy due to the diverging patterns. But, when one chart shows resistance and another chart of the same stock shows a bullish breakout, the chart with the longer time frame will usually prevail. In this case, we view the break above the 8-month weekly downtrend line to be more significant than the resistance from the prior 2-month uptrend line. As such, we maintain our bullish bias on the short-term direction of the S&P.

Like the S&P 500, the Nasdaq Composite also closed above resistance of its weekly downtrend line last week. The one difference, however, is that the daily chart of the Nasdaq looks much better than that of the S&P. Looking at the charts below, notice how the Nasdaq never broke below support of its daily uptrend line AND is now above the prior resistance of the weekly downtrend line:

Because both the daily AND weekly charts of the Nasdaq are in sync with each other, the Nasdaq looks like a safer bet than the S&P or Dow right now. Many sector such as Software and Internets are showing very bullish patterns. The Semiconductor Index remains poised to break firmly higher above its weekly downtrend line and has already cleared horizontal price resistance on its daily chart. A firm breakout in the SOX should be all that is needed to pull the broad market along with it. But, until the results of the Presidential election are confirmed, we expect the market to be a bit skittish.

Today’s watch list:

We have a few new ETF plays in mind, but prefer to wait until the uncertainty of the election has passed before initiating any broad-based ETF positions. We do, however, remain long SMH (Semiconductor HOLDR)

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:

(none)

Open Positions:

unrealized P/L = + $84

Notes:

Still long SMH, but note the new stop above.

Edited by Deron Wagner,
MTG Founder and
President