Commentary:

The major indices began yesterday’s session with bearish opening gaps below their previous day’s lows, but reversed and lazily drifted higher throughout the afternoon. A wave of buying pushed the S&P and Nasdaq back up to their respective highs of last Friday’s range around 2:30 pm EST, but the momentum faded and stocks drifted lower into the final thirty minutes. Eventually, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average each closed 0.1% lower. Both the S&P Mid and Small-cap indices broke their winning streaks yesterday, but each index gave back only 0.3%. The AMEX Biotech Index continued its recent strength, enabling our long position in BBH to move another 0.5% higher. A mix of the Airline, Telecom, Pharmaceutical sectors also closed higher yesterday.

One reason for yesterday’s overall lack of direction and indecision was that total volume in both exchanges declined by approximately 29%. Because the broad market closed lower, the drop in volume was a positive for the bulls, but the downside is that light volume days also tend to be choppy and erratic. Advancing volume and declining volume levels finished the day near the same levels, but declining issues exceeded advancers by approximately 1.5 to 1 in both exchanges. The bullish volume trend in the broad market continues, as most “up” days are occurring on higher volume and the (minimal) “down” days are occurring on lighter volume.

In the June 20 issue of The Wagner Daily, we illustrated how the Nasdaq Composite had reversed four times this month after rallying into resistance at the 2,100 level. When the index rallied late yesterday afternoon, it made it up to the 2,096 level, but once again backed off and saw weakness into the close. So that brings the count up to five failed attempts at breaking out above 2,100. As we have mentioned, each failure to break the 2,100 resistance level weakens the resolve of the bulls which. In turn, continued failure at that level will eventually trigger a selloff in the Nasdaq. In the event that occurs, you may want to make a note of the Nasdaq’s short-term support levels: 2,073 (20-day moving avg.), 2,053 (low of June), and 2,024 (200-day moving avg.).

Although the daily charts of both the Nasdaq and Semiconductor Index ($SOX) have been choppy and stuck in a trading range for the past four weeks, the good news is that this action is forming a bullish “cup and handle” pattern on the weekly charts of both the $SOX and Nasdaq. We have annotated the charts below to illustrate how the “handle” is currently being formed on the “cup and handle” formations of both the $SOX and Nasdaq (moving averages have been removed):

As you may know, a “cup and handle” pattern is one of the most reliable bullish chart patterns in technical analysis. To increase the probability of the pattern working, you typically want to see the handle sloping sideways to lower (as opposed to slanting higher). The top of the handle should also be equal to or slightly lower than the left side of the cup. The pattern also has a higher degree of reliability on a weekly chart than a daily chart, especially when the cup is at least 6 to 8 weeks in length. Looking at the two charts above, you will see that both possess the qualities you want to see in the “cup and handle” pattern. Therefore, we continue to expect a breakout to new highs in both the Nasdaq and $SOX indices, but you need to be a little patient when working with weekly charts. Remember that each bar represents a whole week of price action, but the good thing about weekly charts is they eliminate the noise that daily charts often show.

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Today’s Watchlist:

There are no new trade setups for today, as we are now long three ETF positions (BBH, SMH, and PPH).

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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:

BBH long (from June 16) –
bought 167.95, stop 165.10, target (new highs, will trail stop), unrealized points = + 3.87, unrealized P/L = + $387

PPH long (from June 7) –
bought 74.56, stop 73.60, target 79.60, unrealized points = + 0.73, unrealized P/L = + $73

SMH long (from June 1) –
bought 34.82, stop 32.10, target 44.90, unrealized points = (0.53), unrealized P/L = ($159)

Notes:

No changes to the open positions above.

Edited by Deron Wagner,
MTG Founder and
President