The Wagner Daily


The broad market spent all of yesterday’s session in a tight range, consolidating in the lower end of the previous day’s range and closing the day with mixed results. Trading was less volatile than the first half of the week, which is normal after several strong trending days. The S&P 500 Index, which came within two points of its 50-day moving average yesterday, closed with a 0.4% gain. The Dow Jones Industrial Average snapped its six-day losing streak with a feeble 0.2% gain. The Nasdaq Composite, however, closed 0.1% lower. It was the Nasdaq’s fifth straight losing day, and the second day of closing below its 50-day moving average.

Total market volume declined by 9% in the NYSE and 8% in the Nasdaq. The decline in volume spared the Nasdaq of another “distribution day,” but the fact that both the S&P and Dow rallied on declining volume was bearish. As mentioned in yesterday’s newsletter, we are not comfortable with entering new long positions in the broad market unless we would suddenly begin to see a few “up” days on higher volume. Yesterday’s decline in volume, and corresponding lackluster performance in the broad market, indicates the sellers were merely taking a break and the market was digesting its recent losses.

In the January 3 issue of The Wagner Daily, we analyzed the long-term monthly charts of both the S&P and Nasdaq. As you may recall, the S&P was nearing resistance of its 61.8% Fibonacci retracement from the year 2000 high down to its 2002 low. The Nasdaq, however, had not even retraced one-third of its losses during the same period. This information is useful for remembering the long-term “big picture” of the broad market, but let’s take a look at the intermediate-term trends of the weekly charts.

The Nasdaq has declined a not insignificant four percent during the first four days of the new year. However, the index is now approaching support of its primary weekly uptrend line, which began with the low of August 2004. The weekly chart below illustrates support of the primary uptrend line below:

Because the Nasdaq’s uptrend line has been intact for five months, we recommend caution against being heavily short in this vicinity. Only a confirmed break of this trendline would warrant an intermediate-term bearish stance on the markets. A break of the trendline, however, is not likely without the Nasdaq at least attempting to bounce off its support first.

The S&P 500 does not have the same clear trendline as the Nasdaq, but is approaching horizontal price support from its prior highs at the 1,160 area, which occurred in February and March of 2004. The blue horizontal line on the chart below illustrates the next major area of support in the S&P:

In the short-term, there continues to be no impetus for entering new long positions. Because volume has been high on the “down” days and was lighter on the one “up” day, it appears institutions remain in selling (“distribution”) mode. As such, we continue to view any bounce in the broad market as a chance to unload long positions and initiate new short positions. The longer the major indices remain below their 20-day moving averages, the more overhead supply that is created. Furthermore, the Nasdaq now has overhead resistance of its 50-day moving average as well. Earnings season begins next week, so it will be interesting to see how stocks react to any positive reports. Because of the upcoming plethora of corporate earnings reports in the latter half of next week, it’s quite possible the major indices will remain in a holding pattern throughout the next few days.

Today’s watch list:

RTH – Retail HOLDR

Trigger = below 96.77 (below yesterday’s low)
Target = 92.60 (support of the 200-day MA)
Stop = 99.20 (above yesterday’s high)

Notes = While we are not confident about entering new short positions in the broad-based ETFs at current levels, a few sectors have only now just begun to show weakness. The Retail sector is one of those. We expect another leg down in RTH, and will short on a break of the primary uptrend line (as shown on the chart above).

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:



We are now flat the ETFs, waiting for a low-risk entry point for new short positions.

Edited by Deron Wagner,
MTG Founder and