The Wagner Daily


The broad market rallied firmly higher throughout most of yesterday’s session, but Election Day jitters caused the major indices to give back their gains during the final hour. At its intraday peak, the Nasdaq Composite had rallied as much as 1.2%, but the late day selloff caused the index to close only 0.2% higher. Similarly, the S&P 500 Index was trading as much as 0.9% higher, but closed unchanged. The Dow Jones Industrial Average gave up a 0.8% gain to close 0.2% lower. Volume in both the NYSE and Nasdaq was 19% higher than the previous day’s level, but most of the volume increase occurred during the final hour’s selloff. Although the Nasdaq closed 0.2% higher, it was more like a “distribution day” because volume rose sharply when the index gave up 1% of its intraday gain.

From a purely technical basis, yesterday’s market behavior was bearish because the major indices each gave back solid intraday gains and did so on big volume during the final hour. Correspondingly, each of the major indices formed “shooting star” candlestick patterns, which often indicate the short-term top of a rally. However, it’s difficult to read much into yesterday’s action because it was a pre-Election Day session, which usually causes erratic intraday action that is often blown off the next day. In fact, the S&P and Nasdaq futures are both trading above yesterday’s intraday highs as of the time of this writing. If this holds into today’s open, each of the major indices will have completely blown off the afternoon selloff and will open above yesterday’s highs. But, whether or not the gap will hold is a completely different scenario. For help in managing any open positions you may have coming into today’s huge pre-market gap up, you may wish to review the MTG Opening Gap Rules. In summary, we won’t be buying new positions with today’s gap up unless the major indices subsequently set new highs after their first 20 minutes of trading.

In yesterday’s newsletter, we illustrated the breakout above the weekly downtrend lines in both the S&P 500 and Nasdaq Composite. Despite yesterday afternoon’s selloff, both indices remain above new support of their prior downtrend lines. Therefore, we are not recommending short positions unless the S&P and Nasdaq both drop back below their weekly downtrend lines, as they did four weeks ago. However, if you don’t already have long positions at this point, a bit of caution and patience may be in order due to some important resistance levels both the S&P and Nasdaq are approaching on their daily charts.

On an intraday basis, the S&P 500 Index was trading above resistance of its prior uptrend line on the daily chart (which we illustrated for you yesterday), but the index eventually closed back below that trendline. Now, with today’s opening gap, it will once again be trading back above the prior uptrend line, but now will be approaching resistance of its prior high, which was set on October 6. This prior high is a key resistance level to keep an eye on today. The red horizontal line on the chart below illustrates resistance of the prior high, while the upward sloping blue line illustrates resistance of the prior uptrend line:

Needless to say, it will be quite bullish if the S&P gaps and holds above its prior high from October 6. If that happens, MTG will be adding to our existing long positions and using stops just below today’s lows. Remember that support of the weekly downtrend breakout will serve to reinforce any breakout on the daily charts. While today’s gap could easily push the S&P above both resistance levels illustrated above, the daily chart of the Dow Jones Industrial Average does not look as bullish due to resistance of both its daily dowtrend line and its 50-day moving average:

The relative weakness of the Dow is one factor that could throw a wrench in the bullish party, so keep a close eye on this index today with regard to whether or not it is able to move and hold above its daily downtrend line illustrated above.

The Nasdaq Composite continues to have the best looking chart due to its lack of overhead resistance. However, it ran into a key “psychological resistance” level when it tested 2,000 yesterday. While there is no technical resistance right at 2,000, markets often back off near large round numbers because people expect them to. This selling near the large round whole numbers often becomes a self-fulfilling prophecy and creates resistance at said level. So, watch to see how the Nasdaq acts near 2,000 today. It will all come down to whether or not the gaps hold.

Today’s watch list:

We like each of the broad-based ETFs on the long side (QQQ, SPY, DIA), but only if the opening gap holds. Therefore, we will not be calling these as “official” trades until we see the results of today’s huge opening gap. We do, however, remain long a full position of 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:


Open Positions:

    SMH long (from Oct. 28) –
    bought 32.29, new stop – 10 cents below 20-minute low, target 35.90, unrealized points = + 0.19, unrealized P/L = + $57


Since SMH is currently gapping up more than 3% in the pre-market, we will be raising our stop to 10 cents below the low of the first 20 minutes of trading in order to protect profits if the gap fails to hold.

Edited by Deron Wagner,
MTG Founder and