The Wagner Daily


An unimpressive earnings report from tech behemoth Cisco sparked a broad-based selloff that resulted in each of the major indices closing at their intraday lows. The Nasdaq Composite Index lost 1.6% yesterday, the S&P 500 lost 0.9%, and the Dow Jones Industrial Average gave up 0.6%. Just as the Nasdaq Composite led the way higher the past several days, it also sustained the largest loss of the three major indices. Unfortunately, the Semiconductor Index ($SOX) failed to maintain its relative strength and gave back all of the previous day’s gain.

Total market volume in the NYSE was 7% higher, but volume in the Nasdaq was about the same as the previous day’s level. The lower closing prices on higher NYSE volume means that yesterday was a bearish “distribution day” for the S&P and Dow. The good news, however, is that volume in the Nasdaq failed to increase correspondingly. In a market that is attempting to rally, it’s always better to see the same or lighter volume volume on the down days, but higher volume on the up days.

One industry sector to keep an eye on is the Biotechnology Index ($BTK), which is poised to break below support of its 200-day moving average. BBH, one of the ETFs that tracks twenty different biotech stocks, has a similar chart pattern. Although it has been choppy during the past several weeks, each subsequent test of the 200-day MA increases the odds of it breaking support. If it does, you may be presented with a low-risk shorting opportunity in BBH (Biotech HOLDR). The daily chart below illustrates this:

After studying daily charts of the major indices, we came to the conclusion that the broad market is currently in “no-man’s land.” This means there are too many mixed signals that could tip the markets in either direction. Both the S&P 500 and Dow Jones Industrials sold off on higher volume yesterday, which is bearish, but both indices remain above support of both their 20 and 50-day moving averages, which is generally bullish. At first glance, the Nasdaq Composite appears quite bearish because it remains below both its 20 and 50-day moving averages. However, recent strength within the Semiconductor Index is likely to pull the Nasdaq higher as well. To top it off, each of the major indices are now approximately in the middle of their ranges from their December highs down to their January lows. In the short-term, it seems one could easily make a bullish or bearish argument and be right in both cases. Therefore, we recommend shifting to a mostly cash bias until the broad market clearly shows us the direction of its next major move. Capital preservation must always be your top priority so that you will be ready to take advantage of clear profit opportunities when they eventually present themselves again. Patient, disciplined traders are always rewarded amply.

Today’s watch list:

There are no new setups, although we remain long SMH. We are considering BBH short as well, but are reluctant to enter new positions due to mixed market conditions.

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 Feb. 7) –
    bought 32.55, stop 31.90, target 34.90, unrealized points = (0.03), unrealized P/L = ($9)


No changes.

Edited by Deron Wagner,
MTG Founder and