The Wagner Daily


Although the major indices closed higher for the week, the broad market failed to follow through on Thursday’s rally and ended the week on a somewhat negative note. Although the Nasdaq Composite gained an impressive 2.5% last Thursday, it gave back 1.5% on Friday. The S&P 500 and Dow Jones Industrial Average both held on to more than half of their gains from the previous day, as the indices dropped 0.6% and 0.7% respectively. Despite the losses, it could have been worse for the bulls because each of the major indices had given up more than two-thirds of Thursday’s gains by 3:00 pm EST. A wave of buying during the final thirty minutes of the session enabled the broad market to recover significantly.

One positive of last Friday’s losses was that total market volume declined by 8% in both the NYSE and Nasdaq. Nearly all of the broad market’s recent down days have occurred on higher volume, but Friday’s losses occurred on lighter volume than the previous day. This means that Friday’s selling was not the result of heavy institutional distribution, but also bear in mind that the previous day’s gains also occurred on lighter Nasdaq volume and marginally higher NYSE volume. Market internals were firmly positive last Thursday, but were equally negative on Friday. Declining volume in the Nasdaq, for example, outpaced advancing volume by a ratio of 4:1. Overall, the broad market showed a lot of indecision during the latter half of the week. A quick look at the intraday action of the Nasdaq during the past three days clearly illustrates how the index has resembled a roller-coaster:

One probable reason for Friday’s losses was the major overhead resistance of the 1,163 level on the S&P 500, which we discussed in last Friday morning’s Wagner Daily. Although the S&P had rallied back above its 200-day moving average, we mentioned that the 1,163 level would be difficult for the index to push through. As you may recall, the 1,163 level is a significant resistance level because it corresponds to the prior lows of the double bottom that formed in January and March of 2005, but was broken earlier this month. Remember that prior support levels always become the new resistance levels once the support is broken. Furthermore, the 1,163 level also corresponds to resistance of the prior highs from early 2004. Going into this week, keep a close eye on how the S&P 500 acts on any test of the 1,163 resistance. As long as the index remains below 1,163, we would remain positioned mostly on the short side of the market. The red horizontal line on the chart below marks the horizontal price resistance of 1,163. Also notice that the S&P closed back below its 200-day MA:

As for the Nasdaq Composite, you will notice that the upper channel of the primary downtrend line now converges with resistance of its 200-day moving average. The convergence point, currently at the 1,990 level, is the main area of resistance the Nasdaq will need to contend with in the coming week. Take a look:

Interestingly, the daily chart of the Dow Jones Industrials is showing a similar convergence of its 200-day MA and primary downtrend line. This, of course, is the near-term resistance level to watch on the Dow:

Many companies continue to report earnings in the coming week, so be cognizant of that with any new individual stock positions you enter. In the intermediate-term, we remain positioned on the short side of the broad market, but on the long side of Biotechs and Pharmaceuticals. We also continue to hold short positions in the U.S. Home Construction sector.

Today’s watch list:

There are no new trade setups for today, although we remain long PPH and short SPY.

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:

    PPH long (from April 7) –
    bought 72.80, stop 72.90, target 77.60, unrealized points = + 1.75, unrealized P/L = + $175

    SPY short (from April 20) –
    short 114.72, stop 117.10, target 109.20, unrealized points = (0.85), unrealized P/L = ($170)


No changes to the open positions.

Edited by Deron Wagner,
MTG Founder and