The Nasdaq showed more relative strength than the Dow and S&P yesterday, which is the opposite of what we saw in the latter half of last week. However, both the Nasdaq and S&P have broken the lower channel support of the uptrend that has been in place from August 5 to 9 (labeled in the chart below). As you know, any break of support on an uptrend becomes the new resistance. If the Nasdaq or S&P breaks the high of the past three days, I will still be looking to go long because of the major resistance both indices will have broken on the daily and weekly charts. However, I would be surprised if that happens today because most traders will be sitting on the sidelines until the FOMC meeting is over. A more likely scenario is to see a break of the lower channel of the uptrend that formed from August 5 to 12, which would indicate a good short opportunity.
Monday’s uneventful action and relatively tight trading range in both the S&P and Nasdaq was largely expected as traders await the FOMC meeting that will be held later today. It is important to remember that the actual announcement from the Feds does not really matter, but what matters is the REACTION to any change of bias. It does no good to try to figure out WHY the market acted this way or that way; rather, just watch price action. That matters more than anything! Remember that light volume typically prevails on Fed day, which consequently causes odd moves in the indexes. Be cautious if you are do any active trading today.
Today’s watch list:
SPY – S&P 500 Index Tracking Stock (ETF)
Trigger = 89.75
Target = 88.55
Stop = 90.30
Notes = As mentioned above, yesterday’s break of the immediate uptrend from August 5 – 9 has created some new overhead resistance. I will be looking to short on a break of the trendline from August 5 to 12, with a target of the 200 MA on the 60 minute chart, which also correlates with the lower channel uptrend line on the daily chart from the lows of August 24. If the short triggers due to a gap down, I will wait for a break of the 20-minute low before shorting (per my usual rules).
PPH – Pharmaceutical HOLDRS trust (ETF)
Target = 78.05
Stop = 73.90
Notes = The Pharmaceutical index (DRG) had good relative strength yesterday and closed near the highs of the day. Index has been consolidating at the highs for the past three days, and is likely to break the highs on any strength in the market. The sector has stayed above the 40 day moving average for the past several days, which has not been seen since the end of March 2002. The former resistance of the 40 MA should now become support. The price target is a Fibonacci extrapolation of the most recent price move from 67.5 to 75. Remember to adjust your position size based on the volatility of this stock (https://www.morpheustrading.com/calculator.xls).
Deron’s Report Card:
As I was reviewing yesterday’s issue of The Wagner Daily on the jet back from California to Florida yesterday, I noticed that I had accidentally listed incorrect trigger, stop, and target prices for the BLS short. However, I was in the middle of a 7 hour flight, so I was not able to send out an update to correct the error until after the market closed. So, my apologies for the mistake.
The QQQ long from yesterday did not trigger.
- QQQ long – (never triggered)
BLS short – (never triggered per explanation above)
AMCC long – (from Friday; never triggered)
HD short – (from Friday; shorted 26.85, stopped out 27.95, closed with (1.10)
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
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
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
Unless otherwise noted, average holding time is 2 days to 2
weeks once a position is triggered. Updates on open positions are provided
Yours in success,
Deron M. Wagner