The Wagner Daily | May 3, 2005

Commentary:

The major indices drifted lower throughout most of yesterday’s session, but low-volume buying interest during the final ninety minutes lifted the broad market into positive territory. The Nasdaq Composite gained 0.4%, the S&P 500 gained 0.5%, and the Dow Jones Industrials moved 0.6% higher. Total market volume, however, fell sharply on both exchanges. Volume in the NYSE dropped off by 17%, while volume in the Nasdaq came in 24% lighter than the previous day’s level. While it was positive to see the broad market build on the previous afternoon’s gains, volume in the NYSE was the lowest of the past five days.

In yesterday’s Wagner Daily, we discussed the significance of the 1,163 resistance level on the S&P 500. The S&P’s 0.5% gain yesterday caused the index to close at 1,162, just one point shy of that level. As such, we expect the S&P 500 to either “make it or break it” over the next several days. If the index stalls here, which is a good possibility, we would anticipate a sharp downside reversal and break to new swing lows. This is what happened to the Nasdaq after the bulls threw in the towel on April 13 due to the Nasdaq’s inability to hold above its 200-day moving average last month. A failure to rally back above the 1,163 resistance level would present a low-risk opportunity for new short positions if you’re not already short. In addition to the horizontal price resistance of 1,163, the S&P is also coming into resistance of its downtrend line on the daily chart:

Conversely, the S&P 500 could equally see a strong rally IF it closes firmly above the 1,163 level, but such a breakout would only be trusted if also backed by strong volume. If, however, the S&P does manage to rally and close above 1,163 on strong volume, be sure to honor your stops on short positions because such a rally could easily build momentum. But don’t forget that resistance of the 200-day moving averages on both the Dow and Nasdaq are likely to put a damper on any rally in the S&P 500. In addition to the 200-day moving averages, both the Dow and Nasdaq Composite are also approaching resistance of their primary downtrend lines. The Dow Jones Industrials, for example, closed just shy of its downtrend line that has been in place since the high of March 7. A failure to break out above the downtrend line will send the index back down to its lows. The daily chart below illustrates this downtrend line:

Similarly, the Nasdaq has a ton of overhead supply, as well as all its major moving averages to contend with:

Because of the significance of these downtrend lines and key resistance levels the major indices are approaching, expect to see some whippy and volatile intraday price action in the coming days. The bulls and bears are likely to engage in a vicious tug of war because the eyes of all technical traders are on these key levels this week. As such, continue to maintain minimal position size, as well as a cash position. Doing so will enable you to quickly and easily enter new positions when the outcome of these resistance levels is resolved.

Today’s watch list:

As we now have three open positions (DIA and SPY short, PPH long), there are no new trade setups for today.

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 = + $239

DIA short (from April 26) –
short 101.96, new split stop- HALF at 103.10, HALF at 103.90, target 97.10, unrealized points = (0.62), unrealized P/L = ($124)

SPY short (from April 20) –
short 114.72, stop 117.25, target 109.20, unrealized points = (1.68), unrealized P/L = ($336)

Notes:

The stop on the first half of DIA has been adjusted due to resistance of its daily downtrend line at original stop price.

Edited by Deron Wagner,
MTG Founder and
President