The Wagner Daily


After taking a rest for only one day, the major indices once again closed firmly higher across the board, but this time they failed to close at their intraday highs. After moving slightly higher on the market open, the broad market surged sharply higher after the first thirty minutes of trading. Most stocks held their gains for several hours, but the bears took control at 2:00 pm and caused the major indices to retrace more than half of their earlier gains. The broad market rallied a bit during the final thirty minutes of trading, but each of the major indices still closed well below their best levels of the session. Both the S&P 500 and Nasdaq Composite closed the day 0.9% higher, with the Semiconductor Index ($SOX) keeping pace with the Nasdaq and moving 0.8% higher. The Dow Jones Industrial Average also gained 0.8%. Although market action was indecisive in the afternoon, it was a bullish session overall because many market leading sectors and stocks continued to build on their recent gains and closed above last week’s highs.

The Nasdaq scored another bullish “accumulation day,” as total volume in the exchange increased by 3% over the previous day’s level. For the past several weeks, more than half of the vast quantity of “up” days have occurred on higher volume, a confirmed sign of institutional buying activity (“accumulation”). However, total market volume in the NYSE actually declined by 3% yesterday, despite a gain of nearly 1% in the S&P 500. Higher volume in the Nasdaq and lighter volume in the NYSE has also been a pattern for the past several weeks and has been the primary reason the Nasdaq continues to show relative strength to both the S&P and Dow. Nevertheless, market internals were bullish in both exchanges yesterday. Advancing volume was nearly four times greater than declining volume in both the NYSE and Nasdaq. Advancing issues in the NYSE also beat declining issues by a margin of nearly 3 to 1.

Both the S&P 500 and Nasdaq Composite closed yesterday above last week’s highs, but the Dow Jones continued to lag and closed below last week’s intraday highs. While the Nasdaq continues to power ahead without any immediate overhead resistance, the Dow has yet to close above its range of horizontal price resistance at the 10,550 – 10,570 area. The red horizontal line on the daily chart below illustrates how that range of overhead supply from late March and early April continues to be a problem for the Dow:

Although the Dow is only an index of thirty stocks, don’t underestimate the psychological importance of the Dow’s direction. If the Dow remains stuck in a sideways range for much longer, it will surely become a drag on the Nasdaq as well. If all the recent gains in the Nasdaq can only move the Dow sideways, it is likely the Dow will be the first index to drop sharply if/when the Nasdaq experiences a moderate price correction. If that occurs, expect many investors and traders to bail out of the Nasdaq as well because they will see the Dow falling and interpret that as a bearish overall sign for the market. This is why we feel the direction of the Dow is important, even though it is based on only a handful of blue-chip stocks.

As for the Semis, the $SOX briefly traded above last week’s high in yesterday’s session, but closed near the middle of the range. While it would have been quite impressive for the $SOX to break out to new highs again, it actually is more healthy if the index continues to build a base at its recent highs instead. As long as the breakout above the 5-year downtrend and the 200-week MA remain intact, a sideways consolidation in the $SOX is not a bad thing. The longer a base of support forms at current prices, the more solid the breakout to new highs will eventually be with our new long position in SMH.

Today’s Watchlist:

There are no new plays for today, although we are now long SMH.

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:

    UTH short (from May 13) –
    shorted 103.64, covered 105.93 (avg.), points = (2.29), net P/L = ($232)

Open Positions:

    SMH long (from June 1) –
    bought 34.82, stop 31.70, target 44.90, unrealized points = (0.22), unrealized P/L = ($66)


UTH stopped out, but SMH triggered on the long side.

Edited by Deron Wagner,
MTG Founder and