The Wagner Daily | April 13, 2005

Commentary:

The broad market spent the first half of yesterday trending lower and in negative territory, but support of the Dow’s 200-day moving average triggered a strong afternoon reversal that caused each of the major indices to close higher. At their intraday lows, the Nasdaq Composite was trading 1.1% lower and the S&P 500 was off 0.9%, but both indices reversed sharply and closed higher by 0.7% and 0.6% respectively. The Dow Jones Industrial Average reversed an early loss to close 0.6% higher as well. Each of the major indices also showed bullish behavior by closing near their intraday highs. The swing from yesterday’s lows to highs made it one of the most volatile days the major indices have seen in a long time, but the action was positive overall.

The most important thing about yesterday’s session was that the broad market finally saw a strong surge of volume while prices closed higher. Total market volume in the NYSE increased by 29%, while volume in the Nasdaq rocketed 40% higher than the previous day’s level. It was a definite sign of institutional buying and was the first “accumulation day” in the Nasdaq in more than one month. It was the second time within the past four sessions that the S&P closed higher and on increasing volume. While one day of institutional buying in the Nasdaq is not enough to make us rush out and buy everything, it was a definite heads-up that the tide may be turning. Several more days of higher volume buying may be enough to push the S&P above its 50-day MA and start a new uptrend.

One impetus for the broad market’s afternoon reversal was the fact that the Dow Jones Industrial Average bounced firmly off support of its 200-day MA, which we analyzed in yesterday’s newsletter. The intraday chart of the Dow below illustrates how strongly the index reversed after testing support of its closely-watched 200-day MA:

Given that the Dow also bounced off its 200-day MA on April 4, it appears the index may be attempting to form a double bottom in the short-term. Over the next few days, keep an eye on the 10,560 level that marks resistance of the prior high. Above that, the 50-day MA (currently at 10,659) will act as resistance. Take a look:

The Nasdaq Composite was quite volatile yesterday, as the range from its low to high was 2.0%. At its low, the Nasdaq came within only two points of breaking below its March low, but reversed to close 13 points above its 200-day MA. Another day of high volume follow-through could provide the necessary momentum for the index to finally break away from the magnetic field of its 200-day MA:

As for the S&P 500, it closed only 7 points below resistance of its 50-day moving average, so expect a test of that resistance level within the next several days. Given yesterday’s bullish reversal, we recommend keeping a very tight stop on any remaining short positions you may have. It may be a bit too early to aggressively enter new long positions, but market behavior such as yesterday’s is often associated with short-term bottoms. Therefore, being short is a bit risky now.

Remember that this week kicks off quarterly corporate earnings season. Apple Computer and Advanced Micro, among others, report earnings today. Be careful entering any new positions in stocks that are reporting in the next few days, as major volatility is likely to follow their reports, especially considering the current “make it or break it” point of the broad market. For a free calendar of earnings dates, check out this section of the Yahoo! Finance web site.

Today’s watch list:

There are no new trade setups for today, as we now have three open positions with PPH long, BBH long, and IWM short.

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:

net P/L = + $159

BBH long (from April 7) –
bought 145.15, sold 142.10, points = (3.05), net P/L = ($307)

Open Positions:

unrealized P/L = + $215

PPH long (from April 7) –
bought 72.80, stop 71.80, target 77.60, unrealized points = + 0.66, unrealized P/L = + $66

Notes:

We used the MTG Opening Gap Rules to manage BBH yesterday, but it stopped out after breaking its 20-min. low. Per intraday e-mail alert, we re-entered BBH when it reversed and now have an unrealized gain of 2 points on the position. We also lowered the stop on IWM, which was hit later in the day.

Edited by Deron Wagner,
MTG Founder and
President