The Wagner Daily


The broad market kicked off the new month on a positive note, as each of the major indices advanced sharply higher and on strong volume yesterday. Both the S&P 500 and Dow Jones Industrial Average found support at their 20-day moving averages and registered 1.5% and 1.6% gains respectively. The Nasdaq Composite Index maintained its recent leadership and advanced 2.0%. Traders also benefited from yesterday because most of the gains were the result of smooth and steady intraday uptrends, as opposed to large opening gaps. The Pharmaceutical Index ($DRG) kept pace with the S&P and pushed PPH, which we are currently long, above resistance of its downtrend line from the September high. The Semiconductor Index ($SOX), which has lagged the gains in the Nasdaq over the past several months, suddenly began showing relative strength and closed 3.8% higher. It also advanced above resistance of its 200-day moving average.

As we like to see on “up” days, volume in the NYSE increased by 14%, while turnover in the Nasdaq was 16% higher than the previous day. In the Nasdaq, it was the highest single day of volume since April 29, which confirmed that yesterday’s gains were the result of institutional accumulation. Advancing volume outpaced declining volume by a whopping 5 to 1 margin in the Nasdaq and 3.5 to 1 in the NYSE. Volume, one of the most reliable technical indicators at our disposal, certainly indicated that yesterday’s large gains were substantiated by a fresh wave of buying as opposed to just a lack of sellers.

The strength in the S&P 500 pushed the index to fresh 3-year highs and above its 3-week sideways trading range. This occurred exactly after the 20-day moving average rose up to meet the price of the index. We mentioned the possibility of this occurring in yesterday’s newsletter, which is why we had tightened our stop in the SPY short position. The daily chart of the S&P below illustrates the breakout to new highs that was aided by support of the 20-day MA:

Remember that prior resistance becomes the new support after the resistance has been broken. Therefore, expect the S&P 500 to find support on any pullback to the 1185 area. Resistance, conversely, is now technically non-existent because the index is trading at new highs that are devoid of overhead supply.

The Nasdaq Composite also broke out nicely yesterday and now lies only 14 points below resistance of its prior high from January 2004. If the index closes above that level, it will be in sync with the S&P and be trading at a new 3-year high as well. The weekly chart of the Nasdaq below illustrates resistance of the prior high, which should be watched closely over the next several days:

Just as a heads-up, remember that Intel is reporting its mid-quarter report after the close today. This typically affects the Semiconductor stocks, as well as many other tech-related sectors. Based on yesterday’s strength, it seems like the market may not be too concerned either way, but use caution if you are trading SMH (Semiconductor HOLDR) or other tech-related ETFs.

Today’s watch list:

We like SMH (Semiconductor HOLDR) long today, but are hesitant to call it as an “official” play due to Intel’s mid-quarter report after the close today. If you decide to trade it, however, consider simply reducing your share size to reduce your risk.

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:

    DIA short (HALF position, from Nov. 23) –
    shorted 104.65, covered 105.31, points = (0.66), net P/L = ($68)

    SPY short (HALF position, from Nov. 23) –
    shorted 117.87, covered 118.80, points = (0.93), net P/L = ($95)

Open Positions:

    PPH long (from Nov. 30) –
    bought 69.10, new stop 68.70, target 72.90, unrealized points = + 0.71, unrealized P/L = + $72


Note the new stop on PPH above.

Edited by Deron Wagner,
MTG Founder and