Commentary:
After an initial gap-up yesterday morning, the S&P quickly filled the gap from Monday’s close before finding support and rallying to break the high of the morning gap-up. The Nasdaq followed suit with the exception that it did not completely fill the opening gap because there was more relative strength in the Nasdaq (led by the Semiconductors). As anticipated, the rest of the day was a roller coaster ride with the major market indices rallying to set new highs, then actually setting new intraday lows, and finally closing at the intraday highs. It was enough to make us dizzy! By the way, did anyone notice that the official closing price of the S&P Futures yesterday was 911? Very strange!
Yesterday’s indecision in the markets stemmed from mix of sellers who were not comfortable being long overnight and the less risk-adverse buyers who were positioning themselves for an anticipated relief rally after the passing of September 11. We chose to stay on the sidelines altogether, a decision we felt pretty good about after witnessing the extreme indecision throughout the day. Although there were a few opportunities for scalping (especially with SMH and QQQ long), you had to be quick in order to prevent the winners from turning into losers. One interesting point is that yesterday’s volume in the Nasdaq futures was the highest we have seen since July 24, although the total volume in the Nasdaq did not follow suit.
Going into today, there is a mildly bullish sentiment in the air as both futures markets are gapping up slightly. While it is difficult to accurately predict if that sentiment will hold through the open, it appears we may see a relief rally if we make it through the trading day without any odd world events occurring. We expect today to be a light volume day, which could once again lead to choppiness. However, the passing of today should enable volume to start slowly creeping back into the markets, something that has been lacking for several weeks. With the return of volume often comes smoother trending days, which should allow us to begin taking overnight positions again.
Today’s watch list:
MDY – Mid-Cap SPDR ETF
Sector: n/a
Long
Trigger = 82.15
Target = 83.49
Stop = 81.55
Notes = Even though this play did not trigger yesterday, we still like the setup on the long side for the same reasons mentioned yesterday. The break of the 20-day MA is the key.
Since the futures are rallying, remember our gap rules of not buying opening gaps! We will only buy MDY if it breaks above the high of the first 20 minutes of trading. However, if MDY consolidates near the high without setting a new high, you could buy MDY with a tight stop just below the low of the day. That involves more risk and is only for advanced traders.
DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)
Sector: n/a
Short
Trigger = A RALLY UP TO 87.30 OR HIGHER
Target = 85.90
Stop = 88.15
Notes = This is a FADE setup, which means we will be looking to short the rally into resistance. We will ONLY short DIA at a price of 87.30 or higher. This is also a short setup from yesterday that did not trigger, and we still like DIA short because there is a lot of overhead resistance on the daily chart and DIA is rallying into the right shoulder of a head and shoulders formation. Therefore, our stop is just above the right shoulder of this pattern.
Deron’s Report Card:
We did not enter any new trades yesterday, as neither of our long plays triggered.
Closed Positions:
- MDY long – (never triggered)
DIA short – (never triggered)
Open Positions:
- (none)
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.
SOH = Sit On Hands (Don’t Make Trades)
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