The Wagner Daily
November 24, 2003

Commentary:

Last Friday marked a low-volume, uneventful end to a week of consolidation in which the major indices traded in a narrow, but erratic range. The major indices gapped down below support of their respective 20-day moving averages on Monday, November 17, but spent the rest of the week oscillating between support of their 50-day moving averages below and their 20-day moving averages overhead. Several bearish candlestick patterns formed on the major indices last week including a "bearish engulfing" candlestick pattern on November 18 and a bearish reversal candlestick known as a "gravestone doji" on November 20. In addition, both QQQ (Nasdaq 100 Index) and DIA (Dow Jones Industrial Avg.) closed the week slightly below their 50-day moving averages, but SPY (S&P 500 Index) closed just above it. However, despite these seemingly bearish technical signals, as well as the market's recent inability to rally on positive economic news, total market volume remained light and well below its 50-day average every day last week. This tells us that, even though some of the charts may be starting to appear a bit bearish and due for a correction, a look "under the hood" tells us that the selling has not been as heavy as it may have initially appeared.

Going into this week, we feel it is a good idea to avoid trading the broad-based ETFs unless either support or resistance of last week's consolidation is broken. As long as the major indices remain in their narrow range of consolidation, flirting with their 50-day moving averages, trying to anticipate their next intraday move is a dangerous game that will probably result in losses to your account. This is because intraday trends can reverse quickly and easily when volume is light, as it has been during this recent period of consolidation. Last Thursday's mid-day trend reversal was a good example of this. Therefore, let's take a look at the daily charts of three major broad-based ETFs so that you are aware of the key pivot points that may generate either a buy or sell signal. We will begin by looking at SPY (S&P 500 Index):



As you can see from the chart above, last week's low in SPY was 103.62, which was formed on Friday. A break below this support level would put SPY back below its 50-day moving average and would likely generate another round of selling down to its next horizontal price support level, which is the October 24 low of 102.18. On the upside, resistance is last week's high of 105.45, which would put SPY back above its 20-day moving average and firmly above its 50-day MA as well. However, there is several weeks of price resistance above the 105.45 level that was formed during the first several weeks of November. This means that SPY may remain choppy even if it breaks above last week's highs. Obviously, a break above the 107 area would represent a lack of overhead resistance and a new 52-week high. Now take a look at a daily chart of DIA (Dow Jones Indu. Avg.):



The Dow recently began showing relative weakness to the S&P 500, as indicated by last Friday's intraday break to new lows of the week. Although DIA recovered to close near its intraday highs, the index closed at the lows of its consolidation, just below its 50-day moving average. Putting aside Friday's probe to new lows, 96.47 is the low of last week's consolidation and is likely to serve as an area of support for DIA. Below that, the index could easily test Friday's low of 95.92, then the October 24 low of 95.10. If buyers step in, expect to find resistance between its 20-day MA of 97.81 and last week's high of 97.90. If momentum gets rolling to the upside, 99.35 is the November high to watch. Finally, take a look at QQQ (Nasdaq 100 Index):



QQQ has been showing the most relative weakness of the three major indices. It is the only index that spent most of last week solidly below support of its 50-day moving average, which has created quite a bit of psychological resistance overhead. The key support to watch on QQQ is last week's low of 33.73, which was formed on Friday. Resistance will first be found at the 34.58 area, which is QQQ's 50-day MA. Beyond that, 34.97 marks last week's highs and is also roughly equal to resistance of the lows from the first several weeks of November.

We recommend you write down these pivotal support and resistance levels on the broad-based ETFs and make a commitment to yourself to remain mostly on the sidelines until the major indices break above or below last week's consolidation. Doing so will prevent you from getting "chopped up" by attempting to guess the market's next move, a feat which carries low odds of success due to the mixed signals. Most importantly, keep a close eye on the market's total volume. Any break below support or above resistance should also be confirmed by a sharp increase in market volume. If not, odds are increased that the breakout or breakdown will fail. But, if the major indices make a significant move out of last week's range AND a significant increase in volume accompanies it, then consider positioning yourself in that direction. We really don't care which direction the market goes, but we see no reason to be aggressive until the market shows us what it wants to do next. If you see no clear technical trade setups out there, think about what this is telling you! Let the trades come to you and don't force them to happen. Remember that capital preservation must always be your primary goal before you worry about making profits. Trade what you see this week and NOT what you think!

As you are probably aware, note that the U.S. equities markets will be closed on Thursday, November 27, in honor of Thanksgiving Day. The markets will also close early at 1:00 pm EST on Friday, November 28. Due to the holiday, The Wagner Daily will not be published on Thursday, but regular publication will resume on Friday, November 28.

Today's watch list:

Due to the pre-market opening gap up into the middle of last week's trading range, there are no new plays for today. It is dangerous to anticipate the market's next major move with volume remaining so light. However, we will send an e-mail alert, as always, when and if we enter any new positions today. Otherwise, we will wait for a clear signal for new trade entries.

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:

 Notes:

Per intraday e-mail alert, we covered half of the DIA and SPY shares on Friday morning, then trailed a stop lower on the remaining shares, which was hit later in the day. Therefore, our only open position is now EWJ long.

Edited by Deron Wagner,
MTG Founder and President


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DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily ( hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have a position in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.

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