The Wagner Daily


If you only saw the closing prices of the major indices and did not follow yesterday’s intraday market action, you could easily have mistaken the session to have been a quiet one. After all, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average each closed unchanged from the previous day. However, the closing prices alone were quite deceiving because yesterday’s broad market action was quite erratic and caused intraday chart patterns of the major indices to resemble a roller coaster.

The S&P 500, Nasdaq Composite, and Dow Jones Industrials each gapped down on the open, then promptly rallied above their respective highs of the previous day. But the indices quickly reversed and dropped down to near their respective lows of the prior day. After trapping the bulls from the morning selloff and subsequently consolidating at the lows for several hours, we rightfully anticipated the broad market would maintain its weakness and eventually set new lows later in the afternoon. But, strangely, the major indices rallied back up to test their morning highs from 2:00 to 2:30 pm. As if that wasn’t enough fun, the broad market then saw mild weakness during the final hour of trading, which caused the S&P, Dow, and Nasdaq to each drop and close just above the middle of their intraday trading ranges. If all that sounds too difficult to visualize, yesterday’s intraday chart of SPY (S&P 500 Index) sums it up:

Total market volume in the NYSE increased by 3%, while the Nasdaq’s volume came in 9% higher than the previous day. Because the indices closed flat, the increase in volume does not tell us much. However, we studied the intraday volume patterns of the market in an attempt to determine whether the bulls or bears had the upper hand in yesterday’s indecisive session. Upon doing so, we noticed that volume in both exchanges was relatively higher during the late morning selloff than it was during the afternoon rally. Volume in the Nasdaq, for example, was coming in 17% higher than the previous day as of 12 noon EST, but turnover decreased in the afternoon and volume registered only 9% higher by the closing bell. This means that, despite unchanged closing prices in the major indices, the price to volume relationship of the broad market indicated a slightly bearish bias. Nevertheless, NYSE advancing volume marginally outpaced declining volume by a ratio of 1.2 to 1. In the Nasdaq, volume breadth was also positive by a similar margin of 1.3 to 1. Positive breadth, but with heavier sell-side volume, equates to overall conflicting signals. Therefore, don’t be surprised to see more erratic market action today.

Needless to say, yesterday’s indecision in the broad market made it difficult to maintain positions in the broad-based ETFs, both on the long AND short side. We came into the day with a short position in IWM, but we stopped out in the morning when it rallied above the previous day’s high. After closing the short position, it dropped nearly two points when the broad market sold off later in the morning, but then rallied all the way back and actually closed at a new intraday high. Quite unusual behavior indeed. We also shorted both SPY (S&P 500 Index) and DIA (Dow Jones Indu. Avg.) when the market sold off in the morning, but the afternoon rally erased the unrealized gains. Neither position hit their stops, so we remain short both SPY and DIA going into today.

Expect volume to dry up today, as traders often close up shop a day early ahead of major holidays. Unfortunately, a light volume day is likely to exaggerate any already erratic market behavior, so be careful and honor your stops (as always). Remember that the stock markets are closed for Thanksgiving holiday this Thursday, November 25. The markets will also close early, at 1:00 pm EST, on November 26. The Wagner Daily will not be published on Thursday, but regular publication will resume on Friday.

Today’s watch list:

There are no new plays for today, although we are short SPY and DIA from yesterday’s entry.

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:

    IWM short (from Nov. 18) –
    shorted 123.35, covered 124.46, points = (1.11), net P/L = ($113)

Open Positions:

    DIA short (from Nov. 23) –
    shorted 104.65, stop 105.75, target 102.45, unrealized points = (0.34), unrealized P/L = ($68)

    SPY short (from Nov. 23) –
    shorted 117.87, stop 118.55, target 116.10, unrealized points = (0.29), unrealized P/L = ($58)


We shorted DIA per yesterday’s newsletter and SPY per intraday e-mail alert. IWM short hit our stop.

Edited by Deron Wagner,
MTG Founder and