The Wagner Daily


The broad market snapped its multi-week trend of afternoon weakness, as each of the major indices registered solid gains and closed at their intraday highs. After beginning the day with a moderate upside opening gap, the S&P 500, Dow Jones Industrials, and Nasdaq Composite each trended steadily higher throughout the day and eventually registered gains of 1.4%, 1.3%, and 1.6% respectively. The broad-based gains enabled each of the major indices to erase all of the prior day’s losses and a little more, but the one caveat is that overall volume failed to rise correspondingly.

Total market volume in the NYSE declined by 5% yesterday, while volume in the Nasdaq came in 3% lighter than the previous day’s level. Given the huge surge in volume when stocks sold off sharply the previous day, yesterday’s gains would have been much more positive if volume correspondingly increased. If you take a close look at yesterday’s volume levels, you will see that total volume initially began the day on pace to exceed the previous day’s levels, but it tapered off in the late afternoon when the broad market made another leg higher during the final hour of trading. The fact that volume declined on a very solid day of gains is not encouraging for the bulls because it indicates that institutions are still not ready to aggressively buy stocks.

For the time being, it looks like the prior lows from January, which we have been discussing extensively, are holding as major support in both the S&P and Dow. On Tuesday, recall that the S&P traded down to its January low, but closed a few points above it. It subsequently followed up with a 1.4% yesterday. The Dow traded in a similar manner by finding support just above its January low and rallying 1.3% the following day. Yesterday’s rally off that area of support now lends even more importance to those January lows. If the double bottom holds, it could position the broad market for further upside gains in the coming weeks. But if the S&P and Dow now reverse and break below Tuesday’s low, it will be quite bearish and will likely position the market for more selling in the coming weeks. This is why we continue to maintain the importance of these January lows in the S&P and Dow. Reference the March 30 issue of The Wagner Daily for a quick visual reference of those exact price levels of the January lows. As for resistance, watch the 50-day moving averages which are at 10,660 for the Dow and 1,193 for the S&P 500.

Yesterday’s performance in the Nasdaq was notable because it pushed the index back above its 200-day moving average, which was looking like a new area of resistance only one day prior. The Nasdaq Composite also closed five points above that “psychological resistance” of the 2,000 price level. The 200-day MA at 1,992 continues to act as a major pivot of both support and resistance, so watch that level in the coming week. Resistance of the 50-day MA is at 2,047.

The Semiconductor Index ($SOX) has been very choppy and indecisive over the past two weeks, which has made it difficult to maintain positions in that sector. But yesterday’s 2.3% gain was impressive and it put the $SOX back above its 200-day moving average. Because the $SOX often leads the Nasdaq, we recommend paying close attention to the relative strength or weakness of that sector in the coming days. It closed right at its 50-day moving average, and just below its high of the current trading range. However, if it can get back above its 50-day MA, odds are good it will rally back up to at least test its prior high of 449, which was set last month. Though don’t forget that the weekly chart shows a very important resistance level of the 200-week moving average at the 436 level. The daily chart of the $SOX below illustrates how indecisive the sector has been around its 200-day MA:

It can be frustrating when you stop out of a position immediately before it reverses, as was the case with our long position in SMH (Semiconductor HOLDR). But the most important quality in a successful trader over the long-term is the ability to stick to a plan and honor stops at all times. Remember there is nothing wrong with re-entering a position that you stopped out of, even if at a higher price. These trades often turn out to be big winners because they make their moves after they have shaken out many people. Therefore, we will be keeping a close eye on the $SOX index and looking for a potential re-entry point in SMH. But we would only do so if it appears the broad market will be able to sustain a rally for more than a day or two. Patience will be key here.

Something to consider about yesterday’s rally is the fact that it occurred on the second to last day of the first calendar quarter. Because many funds report to their investors on a quarterly basis, you will often see an occurrence known as “window dressing” during the last several days of any quarter. This occurs when fund managers buy stocks in the top performing sectors of the quarter so they can report positions in these stocks and hence give the impression they had been holding them throughout the entire quarter (gotta love that). Therefore, it’s entirely possible that “window dressing” was largely responsible for yesterday’s broad-based gains. The fact that overall volume declined helps to confirm this theory because volume would have risen if there were true institutional buy programs occurring rather than just light institutional participation. Today is the last day of the quarter, so it will be interesting to see whether or not stocks can hold on to yesterday’s gains. We’ll know if yesterday’s gains were legitimate or merely a technical correction based on whether or not we see any upside follow through next week, when the new month and quarter begins.

Today’s watch list:

There are no new plays for today, but we remain short MDY.

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:

    MDY short (from March 23) –
    shorted 120.11, stop 121.10, target 116.05, unrealized points = (0.04), unrealized P/L = ($4)


No changes to the open positions.

Edited by Deron Wagner,
MTG Founder and