The Wagner Daily


The broad market wrapped up a relatively uneventful week on a negative note last Friday, but again on lower volume. Each of the major indices trended lower throughout the day, but buying interest during the final hour minimized the losses. The losses were most apparent within the tech-related sectors, but that was not too surprising given that last month’s rally was led by tech stocks. As such, the Nasdaq Composite lost 0.7% last Friday. The Dow Jones Industrial Average, however, closed 0.1% higher. The S&P 500 shed 0.2%. Most of last week’s trading sessions were choppy, but the major indices showed only minor percentage changes overall. For the week, the S&P 500 Index gained 0.2% and the Dow moved 0.5% higher, but the Nasdaq closed 0.4% lower.

Like the preceding “down” day last Wednesday, total market volume in both exchanges declined. Volume in the NYSE came in 12% lighter, while volume in the Nasdaq was 13% lower than the previous day. The drop in volume was positive because it showed that institutions were once again not too anxious to aggressively dump shares during last Friday’s weakness. The small rally during the last hour was also a positive sign, as institutional activity is often the heaviest during the final hour of each session. Both the S&P 500 and Nasdaq Composite closed lower in three out of five days last week, but only one of those days was a bearish “distribution day” (higher volume but lower closing price). One of the two “up” days occurred on higher volume, meaning there was also a bullish “accumulation day” that matched the sole “distribution day.” Analysis of last week’s price to volume relationship tells us the major indices were merely taking a break from their recent gains as opposed to reversing their bullish trends.

For the second consecutive week, the Nasdaq Composite reversed after failing to break through resistance at the 2,100 level. The red horizontal line on the weekly chart below illustrates the 2,100 resistance level:

As you can see, the 2,100 level has become a clear resistance level the index must contend with, as the prior highs from February and March of 2005 have created a lot of overhead supply. One positive, however, is that the Nasdaq is consolidating near its highs and in a narrow range. This is bullish, as it represents more of a correction by time as opposed to a correction by price. The longer the Nasdaq forms a base at this level, the more momentum will occur if/when the index breaks out above the 2,100 level. Another sign of confirmation is the relative strength in the Semiconductor Index ($SOX), which also has consolidated near its highs for the past two weeks. Both SMH and the $SOX also closed above new support of their respective 200-week moving averages for the past two weeks.

The Dow Jones closed last week in the same trading range for the third consecutive time. The lower end of the trading range is marked by support of both the 20 and 200-day moving averages, while the prior highs of March and early April continue to act as resistance. The daily chart below illustrates the trading range:

Sooner or later, the Dow will break out of this range and the move could easily be fast and furious when it does. Therefore, you might want to set price alerts on your trading software so that you can instantly be alerted if the Dow (and DIA) breaks below support or above resistance. Support on the Dow is around 10,430, which equates to approximately 104.30 for DIA. Resistance on the Dow is at the 10,550 to 10,570 range (105.50 to 105.70 for DIA). As for the S&P 500, the 1,190 continues to be the main support level to watch. The 20-day MA has also risen up to converge at that level as well.

One index that has been outperforming the others is the S&P 600 Mid-Cap Index, which is represented by the MDY exchange traded fund. While many indices showed only minor signs of life last week, MDY set a new all-time weekly closing high. Take a look:

MDY’s weekly closing price of 124.65 exceeded its prior weekly closing high of 124.47, which was set the week ending March 4, 2005. On an intra-week basis, 125.57 is the actual all-time high, so it would be safer to wait for a break out above that price before buying MDY. A week or two of price consolidation at its current highs would also help to build a base of support for MDY. Nevertheless, keep an eye on the mid-caps because that index is showing the most relative strength of the major indices.

Today’s Watchlist:

There are no new trade setups today, as we currently have three open positions (SMH and PPH long, RTH 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:


Open Positions:

    SMH long (from June 1) –
    bought 34.82, stop 32.10, target 44.90, unrealized points = (0.22), unrealized P/L = ($66)

    PPH long (from June 7) –
    bought 74.56, stop 73.20, target 79.60, unrealized points = (0.84), unrealized P/L = ($84)

    RTH short (from June 9) –
    shorted 94.55, stop 96.35, target 88.30, unrealized points = (0.63), unrealized P/L = ($63)


There are no changes to the open positions.

Edited by Deron Wagner,
MTG Founder and