The Wagner Daily


The broad market followed up Tuesday’s selloff with another day of losses yesterday, but the losses were small and volume declined this time. The major indices spent the first half of the day trading sideways to higher, but once again fell in the afternoon. The Dow Jones Industrial Average showed relative strength for the second consecutive day, as the index closed only 0.1% lower. The 0.3% loss in the Nasdaq Composite was also minor compared to the previous day. The S&P 500 Index lost 0.2%. Despite the weakness in the major indices, there were pockets of strength within a few technology-related sectors. Not surprisingly, the Semiconductor Index ($SOX) bucked the trend and gained 0.6%. Other tech sectors that closed higher were: Disk Drive Index ($DDX) + 0.7%, Networking Index ($NWX) + 0.7%, and Computer Hardware Index ($HWI) + 0.5%.

Another positive of yesterday’s session is that total market volume declined in both exchanges. Turnover in the NYSE declined by 8%, while volume in the Nasdaq came in 13% lighter than the previous day. Given that Tuesday was a confirmed “distribution day,” a second consecutive session of higher volume selling yesterday would have been bearish. Volume was also below average levels in both exchanges. Market internals were positive throughout the first half of the day, but deteriorated in the afternoon. Nevertheless, the advance/decline ratios were negative by a relatively small margin.

Yesterday’s 0.3% loss in the Nasdaq put the index below support of its recent trading range that we analyzed in yesterday’s Wagner Daily. However, the six-week uptrend still appears quite healthy because the Nasdaq has yet to even retrace down to support of its 20-day moving average, which is seventeen points below yesterday’s close:

If the Nasdaq does drop down to support of its 20-day MA (circled above), we feel it would provide a low-risk entry point to buy strong stocks and ETFs you may have missed on the initial move higher last month. We would feel even more confident buying such a retracement if successive down days occur on lighter volume. The $SOX Index has been showing so much relative strength that the index is likely to trade sideways even if the Nasdaq heads lower from here. Remember that the 200-week MA, currently at the 426 level, should continue acting as a major support level for the $SOX.

One could say the Dow Jones is in “no-man’s land” right now, as the index has been trapped between the same support and resistance levels for the past three weeks. Sooner or later it will break out of its volatility contraction, but the big question is which direction will it go? The horizontal lines on the daily chart below illustrate the range the Dow has been trapped in:

It’s a positive sign that the Dow has held above its 20 and 200-day moving average convergence during the broad market weakness of the past two days. Last week, we were concerned that if a Dow break below the 200-day moving average could cause the Nasdaq rally to fizzle out. But now we are seeing a minor correction in the Nasdaq with the Dow simultaneously trading sideways above support of its 200-day MA. Therefore, if the Dow can muster enough strength to close above the 10,570 level, it could really help to kick the momentum of last month’s Nasdaq rally back in gear. However, keep an eye on that 10,425 level (200-day MA) because it is a key “psychological support” level in the Dow. A break below it could drag the Nasdaq down to a steeper retracement.

The daily chart of the S&P 500 has similarly been in a sideways trading range, but it is not as well defined as the Dow’s range. Support remains at the 1,190 level, with secondary support of the 20-day MA just below at 1,187. The June 7 high of 1,208 is short-term resistance.

Today’s Watchlist:

RTH – Retail HOLDR

Trigger = below 94.52 (below hourly uptrend line and 200-day MA)
Target = 88.30 (support of the May 2005 low)
Stop = 96.35 (above last week’s high)

Notes = This trade setup did not yet trigger, but we are keeping it on our watchlist for entry today. The setup is even better now due to failure at the primary weekly downtrend line (above). RTH has been in a downtrend on its weekly chart for the past three months, but has bounced into a major resistance level that provides a low-risk entry point to enter a new intermediate-term short position. The 40-week MA, as well as major horizontal price resistance at the 94 to 95 range, stopped last week’s rally attempt. We now feel RTH is poised to head back down to test its prior lows.

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 June 7) –
    bought 74.56, stop 73.20, target 79.60, unrealized points = (1.00), unrealized P/L = ($100)

    SMH long (from June 1) –
    bought 34.82, stop 31.70, target 44.90, unrealized points = (0.25), unrealized P/L = ($75)


Per intraday e-mail alert, we entered PPH long about 10 cents before its original trigger price.

Edited by Deron Wagner,
MTG Founder and