The Wagner Daily


The broad market staged a short-lived rally attempt yesterday morning, but resistance of the prior highs from December gave both the S&P 500 and Dow Jones Industrials a good excuse for a correction. The first significant retracement in the Semiconductor Index ($SOX) since the start of the recent rally weighed on the Nasdaq. The S&P 500 lost 0.8%, the Dow lost 0.7%, and the Nasdaq Composite dropped 1.2%. All three of the major indices closed at their intraday lows, which often leads to weakness the following morning.

Given the broad market’s recent gains combined with resistance of the prior highs on the S&P and Dow, yesterday’s price retracement in the major indices was not too surprising. However, total market volume in the NYSE increased by 6%, while volume in the Nasdaq came in 4% higher than the previous day. Because the broad market closed lower and on higher volume, this means yesterday was a bearish “distribution day,” a typical mark of institutional selling. Within the past two weeks, the number of “accumulation days” has outnumbered the “distribution days,” but another day of institutional distribution within the next week would be negative for the markets.

Yesterday’s moderate selloff enabled the major indices to hold support of their uptrend channels from their respective lows of the rally that began at the end of January. The Nasdaq Composite, for example, found support at its 20-day moving average and remains above the lower channel support of the uptrend line from the January 24 low. As long as this uptrend line remains intact, it is safe to maintain a short-term bullish bias, although we need to remember that resistance of the 50-day moving average looms overhead:

As for both the S&P and Dow, the obvious resistance levels remains their prior highs from last December, which we looked at in yesterday’s newsletter. Because both these indices outpaced the Nasdaq during the recent rally, they are still well above support of their 20 and 50-day moving averages. Basically, the S&P and Dow are now in “no-man’s land,” stuck between support and resistance on their daily charts. When this happens, trading often becomes choppy and indecisive, which is all the more reason to not be aggressive in the current environment. While it many not be a bad idea to begin putting out a few short positions with small share size, we prefer to wait to make sure yesterday’s selloff was not just a healthy correction within the context of an uptrend. We feel your best bet is to focus on managing existing open positions, rather than entering new ones right now.

Today’s watch list:

There are no new setups today, 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:


Open Positions:

    SMH long (from Feb. 7) –
    bought 32.55, stop 32.25, target 34.90 on HALF, no target on second HALF (will trail stop), unrealized points = + 0.70, unrealized P/L = + $210


No changes to the stop or target today.

Edited by Deron Wagner,
MTG Founder and