The Wagner Daily


The S&P 500 and Dow Jones Industrials both recouped 0.6% of their previous day’s losses yesterday, but did so on lighter volume. The Nasdaq Composite maintained its pattern of relative weakness and closed less than 0.1% higher. While it was positive to see the major indices recover a portion of Tuesday’s losses, it would have been better to see an increase in total market volume. Turnover in the NYSE decreased by 14%, while volume in the Nasdaq came in 8% lighter than the previous day.

Yesterday’s broad market bounce put the Dow Jones back above its 50-day moving average, but the S&P 500 closed just below it. Both indices held their respective lows of the previous day, which now creates a short-term support level to note. On the S&P 500, short-term support is now at the 1,184 to 1,185 area. On the Dow, keep an eye on the 10,608 to 10,610 area as an area of support over the next few days. If both the S&P and Dow are going to blow off Tuesday’s losses and recover back to their highs from earlier this month, these are the support levels that need to hold. From here, both indices could easily push back above their 50-day moving averages. However, a break below their lows of the past two days would probably result in a selloff down to test their January lows. Keep this in mind when deciding which side of the market to position your portfolio over the next one to two weeks.

As for the Nasdaq Composite, its relative weakness caused it to probe below the previous day’s low yesterday, but the index did manage to recover slightly and above its intraday low. The 2,024 to 2,030 area is the corresponding near-term area of support to watch on the Nasdaq. While the support levels on the Nasdaq are similar to those of the S&P and Dow, the one main difference is that the Nasdaq has a lot more overhead supply (resistance) to contend with. It seems the only thing that could save the Nasdaq in the short-term is the Semiconductor Index ($SOX), which may be poised to rally back up to its prior high from last week.

Although the $SOX has had five consecutive down days, the total percentage loss from those down days is not very significant compared to the sector’s gains earlier this month. From February 1 up to its intraday high on February 15, the $SOX index gained an impressive 10.1%. After its February 15 peak, the $SOX corrected for five consecutive days, but only lost 4.7% during that period. This means the index has retraced less than 50% of its gain this month. Support of both its intermediate-term uptrend line AND its 200-day moving average means the index could now be positioned to rally back up to test its February 15 high. Interestingly, buyers immediately stepped in after the $SOX dropped to test support of its 200-day moving average yesterday. On the daily chart below, notice how yesterday’s low in the $SOX correlated to support of the 200-day MA. The sector also closed right on support of its daily uptrend line (the ascending blue line):

Because of the convergence of the daily uptrend line and the 200-day MA, this is decision time for the $SOX, which will now either “make it or break it.” If you’re long individual stocks in the sector, keep a close eye on yesterday’s low of 419 in the $SOX. As long as the index holds that level, we remain bullish on the Semis. Because the index had such a difficult time rallying above its 200-day MA, that moving average should now serve as decent support. However, be sure to honor stops if the index fails to hold the 417 to 419 area, which could happen if broad market weakness prevails. Our current stop in the long position of SMH (Semiconductor HOLDR) remains just below yesterday’s low.

Our other open position in PPH (Pharmaceutical HOLDR) may be poised to rally from here as well. After a big move higher on February 18, the Pharmaceutical Index ($DRG) corrected modestly the following day, but then rallied again yesterday. Most importantly, the 200-day moving average has perfectly acted as support for the $DRG during the past two days. Notice how the 200-day MA is becoming an area of near-term
support that should enable the index to consolidate and subsequently rally another leg higher from here:

Since the broad market is still giving us mixed signals, we prefer to avoid trading the broad-based ETFs such as SPY, DIA, or QQQQ right now. However, a few individual sectors have charts that provide a better risk/reward than those of the major indices, namely the Pharmaceuticals and Semiconductors. For this reason, we feel that being positioned in mostly cash is probably a good idea, but it won’t hurt to dabble in a few industry sectors that are outperforming the broad market.

Today’s watch list:

There are no new trade setups for today, although we still remain long both SMH and PPH.

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 32.48, target 34.90 on HALF, no target on second HALF (will trail stop), unrealized points = + 0.51, unrealized P/L = + $155

    PPH long (from Feb. 22) –
    bought 72.19, stop 70.40, target 76.75, unrealized points = (0.53), unrealized P/L = ($53)


No changes to open positions today.

Edited by Deron Wagner,
MTG Founder and