The Wagner Daily | April 1, 2005

Commentary:

The major indices followed up Wednesday’s gains with an uneventful day of sideways consolidation yesterday. The broad market closed marginally lower yesterday, but each of the indices retained most of their gains from the previous day. The S&P 500 lost only 0.1%, the Dow Jones Industrials dropped 0.4%, and the Nasdaq Composite closed 0.3%lower. Total market volume in both the NYSE and the Nasdaq came in 3% higher than the previous day, which means yesterday was technically another “distribution day.” However, given that the losses were minimal and the action more closely resembled that of bullish consolidation, it was not apparent that institutions were heavily selling stocks. Nevertheless, the bearish pattern of higher volume on the “down” days and lighter volume on the “up” days remains intact. Therefore, until the current scenario changes, caution is warranted on the long side of the market.

Yesterday wrapped up the first quarter of 2005, one in which the major indices did not fare too well. For the first three months of 2005, the Nasdaq Composite lost 8.1%, its largest quarterly loss since October 2002. The S&P 500 and Dow Jones Industrial Average fared much better, losing 2.4% and 2.6% respectively. Since today begins the new quarter, let’s take an updated look at the longer-term weekly chart of the S&P 500 so that we know the primary areas to focus on over the next few months. As for short-term support and resistance levels, you can reference yesterday’s Wagner Daily because yesterday’s market action did not change those levels we discussed. Here’s a weekly chart of the S&P 500:

The chart above illustrates why we have been placing so much emphasis on whether or not the S&P would hold support of its January low. As you can see, the 1,163 level is important because it not only represents the prior low from January 2005, but also corresponds with the prior high from March 2004. When in an uptrend, technical analysis dictates that prior resistance levels will become the new support levels after the resistance is broken. Therefore, a break below the 1,163 level would represent a long-term break of support. It’s apparent that all eyes are watching this 1,163 level, as the S&P 500 has found support at that level both in January and March of this year. A break below the 1,163 level would likely result in a downward bias for the remainder of the year. Conversely, the S&P 500 could also build a solid base of support if it holds above that level. The one concern, however, is the fact that the S&P failed to breakout to a “higher high” after its first test of 1,163 back in January. This means there will be a lot of overhead resistance the S&P will need to contend with if it tries to rally up to that level again.

Although the price action of the past two days has been bullish overall, the volume levels did not confirm because Wednesday’s rally occurred on lighter volume and yesterday’s minor losses occurred on higher volume. We certainly are not adverse to switching back to the long side of the market, but we won’t do so until we begin to see confirmation of institutional participation, as represented by “accumulation days.” Until that happens, any rallies should be taken in stride and choppy, indecisive days are likely to remain the norm.

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:

(none)

Open Positions:

unrealized P/L = ($29)

Notes:

No changes to the open positions.

Edited by Deron Wagner,
MTG Founder and
President