S&P 500 headed back to the 200-day MA


Momentum from Monday’s bullish intraday reversal abruptly fizzled out yesterday, as stocks resumed the bearish trend from the latter half of the previous week. Although the major indices opened higher, traders promptly sold into strength of the opening gap, sending the broad market into a steady downtrend that persisted through the entire session. The Dow Jones Industrial Average slid 1.1%, the S&P 500 1.4%, and the Nasdaq Composite 1.6%. The small-cap Russell 2000 and S&P Midcap 400 indices swooned 1.8% and 1.5% respectively. All the major indices finished near their intraday lows, in the vicinity of the prior day’s lows as well.

Total volume in the NYSE rose 5% above the previous day’s level, while volume in the Nasdaq ticked 3% higher. Turnover in the NYSE was slightly above average, but trading in the Nasdaq remained below its 50-day average level. Market internals were rather ugly. In the NYSE, declining volume trounced advancing volume by a margin of 8 to 1. The Nasdaq adv/dec volume ratio was negative by 6 to 1. Such negative margins indicate the selling was broad-based, not just confined to a few sectors that weighed on the market.

Last week, after the S&P 500 bounced into resistance of its 20 and 50-day moving averages, we said the amount of overhead supply and technical price resistance in the broad market would likely cause the major indices to decline and test the area of their May 6 lows before they attempted to reset themselves and form a significant bottom. With yesterday’s losses, most of the main stock market indexes are now on their way to doing so. However, barring another insane, intraday plunge such as the one traders witnessed on May 6, the major indices may be more likely to find support near their 200-day moving averages, rather than their ultimate lows of May 6. On the daily chart of the S&P 500 below, we’ve highlighted the next major area of support for the index:


On May 6, when the main stock market indexes nosedived approximately 10% intraday, the 200-day moving average did nothing in the way of providing support to the S&P 500. However, that was quite an anomaly, one in which there is still no clear consensus of the reasons behind the incredible plunge. The following day, when the dust had somewhat settled, the S&P 500 registered another session of losses, but notice the 200-day moving average provided support that coincided with that day’s intraday low (circled in pink on the chart above). We feel there’s a good chance that will happen again, though an intraday “undercut” of 1 to 2% below the actual 200-day moving average would not be surprising.

Our two short positions (IYM and IWM) are each showing an unrealized gain. But due to support of the 200-day MA on the S&P 500, we’re not planning on holding them much longer. If we see another round of substantial weakness in today’s session, we will probably cover both of them into weakness, locking in the profits. Over the next few weeks, we would then look for signs of stabilization near the 200-day MA and/or prior lows. If bases of consolidation develop and relative strength emerges, we’ll dip a toe in the water on the long side of the market. Nevertheless, it’s way too early for that right now. Though we just entered two new long positions (SLV and UNG), both have a low correlation to the direction of the broad market. As such, we’re not overly concerned about them being affected by further near-term weakness in the major indices.

Today’s Watchlist:

There are no new setups in the pre-market today.

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.

    position summary

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  • Stops have been lowered in both IYM and IWM. Be on the alert for a potential Intraday Trade Alert to lock in profits by covering either or both short positions into weakness today. Also, note that IYM will be automatically closed if target price is achieved at any time during the day.
  • Both SLV and UNG, listed in yesterday’s Wagner Daily, triggered for long entry yesterday.
  • 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.
  • 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.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader