The Wagner Daily


Despite early strength in the Semis, the sellers took control shortly after the market opened yesterday, preventing the broad market from following through on Wednesday’s bullish reversal. Stocks drifted lower throughout the entire session until a small wave of buying provided support during the last thirty minutes. Both the S&P 500 and Dow Jones Industrial Average gave back all of the previous day’s gains and closed lower by 1.5% and 1.3% respectively. The Nasdaq Composite lost 1.1%, but relative strength in the Semiconductor Index ($SOX), which was unchanged, prevented the loss from being much worse. The midcap S&P 400 fell 1.3% and the smallcap Russell 2000 Index dropped 1.7%. Each of the major indices closed in the lower third of their intraday ranges, but off their worst levels of the session.

It was obviously quite negative that Wednesday’s gains came completely unraveled only one day later, but the one positive of yesterday’s action is that lighter volume enabled the market to not have another “distribution day.” Total volume in both the NYSE and Nasdaq came in 4% lower than the previous day’s levels, although turnover was still above average in both exchanges. Although volume was lighter, market internals were overly bearish. Declining volume in the NYSE exceeded advancing volume by more than 5 to 1, while declining issues outnumbered advancing issues by 3 to 1.

As we often see during corporate earnings season, the overall market action of the past two days has been quite erratic. Everything about Wednesday’s rally was bullish, but the major indices fell apart yesterday nevertheless. While we did not necessarily expect to see further gains yesterday, at least one day of sideways consolidation would have been a likely scenario. But unfortunately for the bulls, this type of volatile behavior often occurs in downtrending markets due to the vast amount of overhead supply. It seems as if everyone who wanted to buy did so on Wednesday, but there was not enough follow-through buying interest to absorb the supply of the people who were selling into strength to cut their prior losses. Simply put, more overall sellers than buyers will prevent a rally from developing, no matter how powerful any one day’s action may be. This is the reason we recently advised a mostly cash position until we see upside follow-through to Wednesday’s gains.

Looking at the broad market indices, the daily charts are now quite messy and indicate no clear sense of direction in the short-term. The Nasdaq Composite, for example, closed well above its 200-day moving average on Wednesday, but closed below its 200-MA yesterday. The short-term shows the Nasdaq sitting in “no man’s land,” as it is in the middle of Wednesday’s range and could easily go either direction from here:

Showing among the most indecision is the Dow Jones Industrials over the past several days. It’s not too often that you see a triple digit gain in the Dow, followed immediately by a triple digit loss the next day:

While the anticipated short-term direction of the broad market is anybody’s guess, the intermediate-term picture still shows each of the major indices in confirmed downtrends. Keep this in mind when making your trading decisions, as the technicals of the “big picture” are always more significant than technical analysis of a shorter time frame. You may wish to review those downtrend lines, support, and resistance levels in yesterday’s Wagner Daily. Of course, the continued deluge of earnings reports over the next several weeks will continue to spur a tug-of-war between the bulls and bears that will surely result in losses if you overtrade. Cash is king right now, but at least consider reducing your position size if still actively trading the current market. Traders who have the discipline and patience to sit on the sidelines when the picture is fuzzy are usually handsomely rewarded.

Today’s Watchlist:

There are no new plays for today, as stocks are acting too erratic to clearly anticipate the overall direction of the broad market in the short-term. We will re-assess for new entries next week and focus just on managing our two open positions now.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below:

    Open positions (coming into today):

      IWM short (400 shares from Oct. 18 entry) –
      shorted 62.37, stop 63.75, target 59.70, unrealized points = + 0.04, unrealized P/L = + $16

      SMH long (700 shares from Oct. 20 entry) –
      bought 34.49, stop 33.70, target 35.85, unrealized points = (0.13), unrealized P/L = ($91)

    Closed positions (since last report):


    Current equity exposure ($100,000 max. buying power):



      We raised the stop on IWM by a dime to give it a little wiggle room above yesterday’s high. SMH long triggered yesterday.

    for glossary and explanation of terms used in The Wagner Daily

    Click here to view MTG’s past performance results (updated monthly).

    Edited by Deron Wagner,
    MTG Founder and
    Head Trader