The Wagner Daily | February 9, 2005

Commentary:

Strength in the Semiconductor Index enabled the broad market to rally yesterday morning, but enthusiasm faded in the late morning and each of the major indices drifted back down into their prior ranges. Nevertheless, the Nasdaq managed to erase the previous day’s loss by gaining 0.2% and on volume that was 15% higher. The S&P 500 Index was unchanged, but the Dow Jones Industrial Average moved 0.1% higher. Total market volume in the NYSE was 5% higher than the previous day.

The Semiconductor Index ($SOX) showed relative strength to the broad market for the third consecutive day and gained a solid 2.1% yesterday. More importantly, the $SOX also closed firmly above its 200-day moving average. For nearly a year, the 200-day MA has been a key resistance level for the $SOX. Since April of 2004, the $SOX has failed to hold above its 200-day MA for more than a few days. The daily chart below illustrates this:

Until the index proves otherwise, we have to be suspicious as to whether or not the $SOX will once again push through its 200-day MA for just a few days and then fall back below it. However, the one thing that is different this time is that a “higher low” was set on the daily chart before yesterday’s breakout. Of course, the 200-WEEK moving average, presently at the 443 level, will be the real test because it has acted like a brick wall on all previous rally attempts during the past year. Take a look:

After the regular market session closed yesterday, Cisco (CSCO) reported their quarterly earnings. Though they met profit estimates, the stock reacted negatively and was trading lower in the after-hours session. Because of how heavily weighted CSCO is, it’s possible the major indices may struggle a bit today. However, the positive is that most of the individual Semiconductor stocks initially sold off after hours, but promptly recovered to near their closing prices. If the $SOX maintains its recent strength, expect it to prop up the Nasdaq, although the S&P and Dow may be weak. Divergence between the major indices makes it difficult to trade the broad-based ETFs, which is why we remain long only SMH (Semiconductor HOLDR). So far, SMH is showing an unrealized profit since we bought it two days ago.

Today’s watch list:

There are no new positions, although we remain long SMH.

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 = + $192

Notes:

We have raised the stop slightly on SMH.

Edited by Deron Wagner,
MTG Founder and
President