The Wagner Daily


Divergence was the dominant theme in yesterday’s market action, as the S&P and Dow bounced slightly off key support levels, but the Nasdaq registered a loss. Following through on bearish momentum from the previous day’s losses, all the major indices began the day in firmly negative territory, but reversed later in the afternoon. The S&P 500, down 1.1% at its morning low, managed to close 0.3% higher. The Dow Jones Industrial Average similarly gained 0.5%. Though the Nasdaq Composite finished in the upper quarter of its intraday range, the tech-heavy index still declined 0.5%. Small and mid-cap stocks showed the most relative weakness; the Russell 2000 fell 0.9% and the S&P Midcap 400 lost 0.7%. All the main stock market indexes closed near their intraday highs.

Total volume in the NYSE rose 60% above the previous day’s level, while volume in the Nasdaq increased 8%. Not surprisingly, turnover picked up from last week’s lazy, pre-holiday pace, but still remained below 50-day average levels. The Nasdaq Composite’s loss on higher volume caused the index to register a bearish “distribution day,” its fifth such session of institutional selling in recent weeks. However, it was positive that the S&P 500, which already suffered its fifth “distribution day” last week, eked out a modest advance on higher volume. Yet, despite the gains of the S&P and Dow, market internals remained marginally negative. In the NYSE, declining volume exceeded advancing volume by a margin of 3 to 2. The Nasdaq’s adv/dec volume ratio was negative by 5 to 2. Still, the volume spreads were much improved from the ugly indications of earlier in the morning.

In yesterday’s commentary, we said, “odds are now pretty good the S&P and Dow will test critical support of their “necklines” (which is the same as their respective June 2009 lows) within the next day or two,” which is exactly what happened on yesterday’s open. Both indexes briefly “undercut” key support of their June lows (the “necklines” of their head and shoulders patterns) in the morning, then reversed to close higher, and at their best levels of the day. The S&P 500 also bounced off pivotal support of its 200-day moving average. The intraday price action caused the S&P and Dow to form bullish “hammer” candlestick patterns on their daily charts, which is a positive indication for the short-term direction of the market. However, the validity of the bullish “hammers” will not be confirmed until both indexes follow-up yesterday’s reversal by closing higher in today’s session. Further, with a plethora of overhead supply left behind in the wake of the July 2 selloff, stocks would need to see substantially sharper increases in volume in order to overcome the resistance created by that supply.

Yesterday’s slight bounce in the S&P and Dow was not shocking, as the closely-watched support levels of their June lows provided the perfect excuse for bulls to the step up to the plate, despite the previous day’s selling. More interesting was the bearish divergence in the Nasdaq. Because the Nasdaq Composite was showing relative strength to the S&P and Dow throughout all of last week, one might have expected the index to turn in the best performance during yesterday’s reversal off the intraday lows. Instead, the Nasdaq lagged behind the S&P and Dow for the duration of the session, and failed to even close above its morning high:

If the bulls were counting on the Nasdaq to help move the broad market back up, yesterday’s action was not an encouraging sign. If the S&P and Dow resume last week’s weakness, and now lack the bullishness the Nasdaq was formerly providing, it would not take much selling pressure to cause the S&P and Dow to slip below their June lows (and “necklines” of their head and shoulders patterns). Furthermore, a close below yesterday’s low in the Nasdaq would cause the index to lose support of its 50-day moving average, for the first time in more than three months. Unless stocks follow-through with a solid round of gains off yesterday’s bullish reversal, the short-term trends remain bearish. The intermediate-term trends are neutral, but a closing break below the June lows in the major indices would quickly change that scenario.

Today’s Watchlist:

There are no new setups in the pre-market today. If we enter anything new, we will send an Intraday Trade Alert. However, with the broad market at a transitional level, we remain cautious with regard to new positions.

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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

PLEASE NOTE: As of July 1, we have updated to a more “user friendly” format for reporting open and closed positions (see below). Based on the familiar Microsoft Excel style, we believe the new, simplified format makes it much easier to see the status of all positions with just a quick glance. What do you think? We’d love to hear your opinion on the new format change. Just send an e-mail to [email protected].


  • IBB hit our stop after falling below its 5-minute low. The trade was merely a scratch (gain or loss of less than $100). Since healthcare still has one of the best patterns of all the sectors, we’ll consider a re-entry into IBB, or another healthcare ETF, if the market starts heading back up.
  • Thanks for your feedback on the new format of our position summary. We’re studying all your comments and suggestions, and will be making tweaks to the format in the coming days. Feel free to send us further input. We value your comments!
  • For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
  • Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.

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Edited by Deron Wagner,
MTG Founder and
Head Trader