Support Levels for Major Averages ($SPY, $IWM, $DIA)

market timing model:

– Singal generated on the close of April 15 (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist
Having trouble seeing the open positions graphic above? Click here to view it directly on your web browser instead.

open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based a $100,000 model portfolio. Changes to open positions since the previous report are listed in pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

$todays watchlistHaving trouble seeing the open positions graphic above? Click here to view it directly on your web browser instead.

closed positions:

open position summary
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ETF position notes:

  • We stopped out of 150 shares of $SMH and have 250 remaining. If you sold 200 shares that is fine. Please use the stop listed above in the open positions section for the remaining shares.

stock position notes:

  • No trades were made. With the market under heavy selling pressure we cancelled the $AMBA setup.

ETF, stock, and broad market commentary:

The wild rodeo ride of the past several weeks remained in full swing yesterday, as the broad market followed up Tuesday’s solid rebound with a nasty round of selling. Stocks tumbled across the board, led by a 1.8% plunge in the Nasdaq Composite. Faring the “best” of the major indices was the blue-chip Dow Jones Industrial Average, which fell 0.9%.

Unfortunately for the bulls, substantially higher volume in both the NYSE and Nasdaq accompanied yesterday’s tumble. Total volume in the NYSE swelled 18%, while turnover in the Nasdaq jumped 26% above the previous day’s level. The higher volume losses caused both the S&P 500 and Nasdaq to register its third distribution day within the past three sessions. The swift appearance of sharply higher volume selling this week tells us mutual funds, hedge funds, banks, and other institutions have suddenly started laying on the “sell” button. Because of the heavy distribution we are tightening up the stops on a few open stock positions. Please see changes to stops in the open positions section above.

With the S&P 500 still holding the 50-day MA the timing model remains in neutral. A close below the 50-day MA in the S&P (with the Nasdaq already below the 50ma) would generate a sell signal in the timing model.

Rather than looking at individual ETF trade setups in a market that has not exactly been conducive to new trade lately, let’s instead check out the current technical support and resistance levels of a few broad-based ETFs that track the main stock market indexes. First up is the daily chart of S&P 500 SPDR ($SPY), an ETF that tracks the benchmark S&P 500 Index:

$SPY daily chart pattern

As circled in pink, notice that yesterday (April 17) was the first time $SPY has touched support of its 50-day moving average (teal line) since its current uptrend began (with the gap up of January 2, 2013).

The 50-day moving average is widely viewed by institutional traders as a pivotal level of intermediate term support or resistance. Whenever stocks and ETFs are in a steady uptrend, the first pullback that touches the 50-day MA (following the start of a new uptrend) usually sparks institutional buying activity. This, in turn, causes perceived support of the 50-day MA to become a self-fulfilling prophecy.

Since yesterday’s intraday low of $SPY neatly correlated with the first touch of the 50-day MA (since the current uptrend began), we will be monitoring this level closely in the coming days, in order to determine whether or not institutions will step in to support the market at current prices. But even if the 50-day MA of $SPY fails to hold support, there is major horizontal price support, formed by prior resistance from the highs of February, just below. Just above that horizontal price support is technical support of the lows of the recent trading range.


Next up, let’s assess the SPDR Dow Jones Industrial Average ($DIA). Although the Dow Jones is a very narrow-based index comprised of only 30 blue-chip stocks, it is nevertheless an important psychological indicator of the market’s health because it is the index the talking heads of the financial media typically focus on in their daily chatter:

$DIA daily chart pattern

Given how substantial this week’s decline has been, are you surprised to see that the Dow (as represented by $DIA) is actually still holding near-term support of its 20-day exponential moving average? Even if it falls below yesterday’s low, the index still must drop another 1.6% in order to even come in contact with its 50-day MA. Even if that happens, it would still be only the first touch of the 50-day MA so far this year.

Now, let’s jump to the other end of the spectrum by assessing the chart of the small-cap iShares Russell 2000 Index ($IWM). This index is definitely less widely followed by the general public than the price of the Dow Jones. However, with our technical swing trading strategy, the performance of the Russell 2000 is quite important because the majority of our swing trades in individual stocks (not ETFs) are in high-growth small to mid-cap stocks. Here’s a snapshot of $IWM:

$IWM daily chart pattern

As you may have immediately observed upon first glance, $IWM has been showing major bearish divergence compared to $DIA. While the Dow remains above its 20 and 50-day moving averages and is still in a steady uptrend, the Russell 2000 has already broken down below both its 20 and 50-day moving averages. Both the Nasdaq Composite ($COMPQ) and S&P Midcap 400 Index ($MDY) have fallen below their 20 and 50-day MAs as well, but $IWM has the weakest pattern.

Although small caps have clearly been showing relative weakness in recent weeks, notice the index is nearing a major level of horizontal price support that could attract buying interest (prior lows from late January and February). Nevertheless, $IWM must now absorb a plethora of overhead supply. Further, resistance of the 20-day EMA is now sloping downwards, and is in danger of making a bearish crossover below the 50-day moving average. All of these factors present a challenge for small-caps.

In comparing the technical patterns of three charts above, it should be readily apparent that the main stock market indexes are definitely out of sync with one another…and THIS is the biggest challenge in trading the markets right now.

Whenever the major indices display substantial price divergence between one another (as they are now), the typical end result is choppy, indecisive trading that leads to a lack of follow-through in even the best chart patterns and trends of leading stocks and ETFs. Conversely, the biggest percentage gains in swing trading stocks and ETFs are usually earned in stock markets where all the major indices a trending in a similar manner.

Because of the current market environment, we have temporarily shifted into “SOH mode” (sitting on hands). This means we are just focusing on managing existing open positions, rather than opening new ones. This keeps our risk exposure minimal, while still allowing us to potentially lock in gains on current positions. With such divergence among the major indices, it is merely a gamble to predict the direction of the broad market’s next move.

An exception to our current “SOH mode” is the two Southeast Asia ETFs that remain on our “official” watchlist going into today ($THD and $EIDO). Both held up incredibly well by virtually ignoring yesterday’s decline in the US markets, so their bullish patterns we pointed out in yesterday’s newsletter are still valid. Remember that one of the main benefits of trading ETFs, particularly in choppy and indecisive market environments, is that we have the ability to enter ETFs with a low correlation to the direction of the overall US stock market (such as international, currency, bond, and commodity ETFs).

Note the changes to stops and position size for ETFs both on the watchlist and in open positions section. We lowered the stop in $UNG back to the original stop point. After further analysis, we were in too much of hurry to raise the stop. $UNG is a potential breakout from a trend reversal, so we must give the setup room to breathe. The stop in $THD was also lowered to give the entry a little more breathing room.

On the stock side, there are no new official setups for today. We removed $AMBA from the list due to yesterday’s distribution in the market, as we intend to lay low for the next day or two.

Note the changes to stops on existing positions above. We are placing a break-even stop on 20 shares of $LNKD and letting the rest go with the original stop. There is no change to the $KKD stop. We raised the stop in $CLDX after yesterday’s hourly downtrend line breakout on higher volume. If $CLDX is going higher in this environment, then it will have to take off right away. We now have a split stop in place, with stop 1 just below yesterday’s low and stop 2 below the 4/15 low.


relative strength combo watchlist:

Our Relative Strength Combo Watchlist makes it easy for subscribers to import data into their own scanning software, such as Tradestation, Interactive Brokers, and TC2000. This list is comprised of the strongest stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.

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