After an initial spike on the release of ISM non-manufacturing and factory orders reports yesterday at 10 a.m., both the S&P and Nasdaq drifted sideways to lower for the remainder of the day. While the S&P futures stayed in a relatively tight sideways trading range from 12 noon until the close, the Nasdaq showed relative weakness and set a new low into the final fifteen minutes of trading. As we mentioned in the intraday update e-mail that was sent out yesterday afternoon, the highs of September 30 and the lows of October 1 provided price support for the S&P futures, which is what caused the trading range of 817 – 825 for the entire afternoon. The S&P closed above the low of the big rally day on October 1, which now makes the low of October 1 an even more significant support price. The Nasdaq, on the other hand, did not fare as well and actually closed near the lows of September 30 and October 1. This was due in large part to the weakness in the Semiconductor Index on the heels of the profit warning from AMD.
As we discussed yesterday, SPY (the S&P 500 index) is setting up an inverse (bullish) head and shoulders pattern, which you can see on the sixty-minute chart below:
Notice how yesterday’s lows matched the lows of September 24 and 25 (the left shoulder). If this inverse head and shoulders is going to follow-through to the upside, we need to hold those lows and break the upper channel trendline of the downtrend of the past two days (drawn above). This would also put SPY back above both the 20 and 40 period MAs on the 60-minute chart, both of which are important levels. A subsequent break above the neckline would confirm the pattern and would have a predicted rally to about 92. To review the details of head and shoulders patterns, you can read the September 23 issue of The Wagner Weekly.
Today’s watch list:
QQQ – Nasdaq 100 Index Tracking Stock
Trigger = 20.40
Target = 19.60
Stop = 20.80
Notes = If QQQ tests the lows of September 30 and October 1 for a third time, there is a good chance the support will break, thereby setting new multi-year lows in the Nasdaq 100 Index. If that occurs, there is no technical price support to hold the index up. Furthermore, a break to new lows in the Nasdaq is also likely to cause selling across the board.
SPY – S&P 500 Index Tracking Stock
Trigger = 83.45
Target = 85.50
Stop = 82.45
Notes = Per the explanation in the commentary above, we are looking to buy SPY on a break of the upper channel of the downtrend from the past two days, which is also a break above the 20 and 40 period moving averages. Our first target is the neckline.
SPY – S&P 500 Index Tracking Stock
Trigger = 81.75
Target = 80.10
Stop = 82.55
Notes = If SPY fails to hold the lows of September 24 (the low of the left shoulder), it will increase the odds of the inverse head and shoulder failing and subsequently testing the low set on September 30 (the head). The entry price is on a break of the September 24 low. The target is the low of the head on September 30. The stop is just above the l9ow of October 2.
Deron’s Report Card:
SMH swing trade did not trigger. There were also not any intraday trades. WMH, which we bought on October 2, acted very strong relative to the market yesterday due in large part to strength from VZ, one of its high-percentage components. We will keep you updated on any changes to the email that was sent out regarding WMH.
“Swing” trades (per The Wagner Daily)
SMH long – (never triggered)
WMH long (from Oct. 2) – bought 30.35, stop at 27.25, target 42.50, open with + 0.05
Intraday trades (per Intraday Updates E-mail Service)
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
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
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