Commentary:

As anticipated, the broad market was indecisive yesterday and the intraday session was quite choppy. The major indices closed with a mixed performance, but was slightly biased to the upside. The blue-chip Dow Jones Industrial Average showed leadership yesterday and closed 0.8% higher. The S&P 500 gained 0.4%, but weakness in the Internet and Computer Hardware sectors caused the Nasdaq Composite to close flat. Total market volume in the NYSE was about the same as the previous day’s level, but volume in the Nasdaq increased by 6%.

One positive about yesterday’s session was that the Semiconductor Index ($SOX) closed back above its 200-day MA, which has been acting like a magnet for the past several days. Keep a close eye on how the index acts around the 200-MA, not only because we have a long position in SMH, but because the Nasdaq is so heavily weighted with Semis. So far, we believe it is acting as it “should” because an index rarely breaks out above the powerful 200-day MA without at least retracing one or two days after the initial attempt. As we have mentioned before, the “higher low” the $SOX has put in on the daily chart may enable the index to actually hold its breakout above the 200-day MA this time. Just don’t forget the more important 200-week MA, which remains at the 443 area. One way to look at the $SOX is that the index is now at a critical “make it or break it” point in which a big move can be expected. The daily chart of the $SOX below illustrates how powerful a pivot point the 200-day MA has been during the past several days:

Our thoughts on the short-term direction of the major indices remain the same as yesterday. Overall, we anticipate divergence among the major indices, which typically causes choppy and indecisive trading conditions. When this occurs, your best bet is often to wait patiently with a cash position. Alternatively, consider trading the sector-specific ETFs, as we are doing with being long SMH (Semiconductor HOLDR). As earnings season begins to wrap up, the market will probably find a direction one way or the other. But with the major indices in the middle of their recent ranges, it’s a bad idea to be making aggressive bets on either side right now. Remember that patient and disciplined traders are rewarded.

---

Today’s watch list:

There are no new setups, 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:

SMH long (from Feb. 7) –
bought 32.55, stop 31.90, target 34.90, unrealized points = + 0.22, unrealized P/L = + $66

Notes:

No changes.

Edited by Deron Wagner,
MTG Founder and
President