Commentary:
Light volume in the markets yesterday, especially in the morning and early afternoon, made it easy for the futures markets to selloff down to near Tuesday’s lows and rally back up to close at Tuesday’s highs. It is not wise to be aggressively trading when the volume is light because these are the kind of moves that can occur on light volume sessions because there is neither enough selling or buying interest to keep the markets in a solid trend.
The fact that the S&P rallied all the way back from the lows and actually closed ABOVE Tuesday’s highs confirms that the bulls are going to make at least one more attempt at testing the highs of August 1. The candlestick pattern that yesterday’s trading formed is called a “dragonfly doji,” which is a very bullish type of doji star in which the open and close are both at or near the high of the day.
Today’s watch list:
SPY – S&P 500 Holders Trust
Sector: n/a
Long
Trigger = 88.60
Target = 91.30
Stop = 87.15
Notes = This is the tracking stock for the S&P 500 index. The bullish reversal into yesterday’s close which put the S&P above Tuesday’s highs confirmed the sentiment is still bullish in the short-term. SPY is also back over its 20 day moving average as well. A break above the past two day’s highs should result in a test of the swing highs just over 91. My main concern, however, remains the light volume in the markets.
LMT – Lockheed Martin
Sector: Capital Goods
Long
Trigger =
65.10
Target = 69.40
Stop = 63.25
Notes = LMT has been showing great relative strength during the past week and closed at its high yesterday, which also broke the former high set on August 1. LMT is now above all its major moving averages on the daily chart and is also breaking above the upper channel resistance of the downtrend that started on June 27. Once again, the light volume is my only concern here. I would like to see the volume increase if it breaks Wednesday’s high.
Deron’s Report Card:
As discussed in yesterday’s daily report, my plan was to enter the BBH and SMH longs on a gap up if, and only if, they took out their 20-minute opening highs. Although both of them gapped up above their trigger prices, they immediately sold off the rest of the morning, thereby never confirming my entry. It is important to always have a plan when trading stocks that gap up or down a big percentage on the open because it keeps you out of trouble by not entering the stock in case the gap does not hold, such as yesterday. If you entered either of these and are still long, consider using a trailing stop to lock in profits because you are probably in the money now due to yesterday afternoon’s rally.
The VZ short triggered and immediately collapsed, coming to within 30 cents of my price target. When I saw the specialist open the spread and quickly drop VZ a point, I covered half of my position to take some profit off the table, but I am still shor the other half of the position. Although it started out very weak in the morning, it gained strength in the afternoon, closing near my entry price. You may want to consider tightening your stop if it acts strong again today, but I am planning on keeping the same stop price because it correlates with the upper channel of the downtrend from August 1. If I get stopped out on the second half of my position, I will basically break even on the trade.
Closed Positions:
- SMH long (did not meet entry criteria)
BBH long (did not meet entry criteria)
VZ short – shorted 29.37, covered HALF at 28.30, out with + 1.07
Open Positions:
- VZ short – shorted 29.37, stop 30.35, half position open with (0.10)
Glossary and Notes:
Remember that opening gaps that cause stocks
to trigger immediately on the open carry a higher degree of risk because the
gaps (both up and down) often do not hold. Use caution if trading stocks with
large opening gaps.
Trigger = Exact price that stock must trade
through before I will enter the trade. If a long position, I will only enter the
stock if it trades at the trigger price or higher. For a short position, I will
only enter the stock if it trades at the trigger price or lower. It is really
important to only enter the position if the trigger price is hit, otherwise the
trade becomes riskier.
Target = The anticipated price I am
expecting the stock to go to. However, this does not mean that I will
always hold the stock to that price. If conditions warrant, I will sometimes
take profits before that price, in which case I will notify you of the
change.
Stop = The price at which I will have a physical stop
market order set. As a position becomes profitable, this stop price will often
be adjusted to lock in profits. Again, you will always be notified of such
changes in the next daily report or intraday if you subscribe to intraday
updates.
Closed P&L under Deron’s Report Card is based on the actual
price I closed my trade at, not just the theoretical target or stop price listed
for each stock. Open P&L is based on the closing prices of the most recent
trading day.
Unless otherwise noted, average holding time is 2 days to 2
weeks once a position is triggered. Updates on open positions are provided
daily.
Yours in success,
Deron M. Wagner