Well, we really don’t have much to say about yesterday except that it was a horribly choppy mess! Within the first 90 minutes of trading, the S&P futures went from the high of the day, to the low of the day, back up to set a new high, back down to set a new low, and then finally set a lower high around 12 noon, starting an intraday downtrend (albeit a very choppy one). Early in the session, the Nasdaq futures attempted once again to break out of its trading range, but was met by resistance at the 1000 level, which caused the rally to quickly fail. Although 1000 is not a technically significant number, it is what we refer to as “psychological resistance,” meaning that people think it is a big resistance level due to being a big round number so it therefore becomes a self-fulfilling prophecy, just like 10,000 was on the Dow.
Unfortunately, we were not surprised that the market was so choppy because there were several factors at work. The market was digesting several economic numbers that were released yesterday morning. Of particular importance was the Chicago PMI number, which really caused some wild indecision in the markets. In addition, yesterday was the last day of the fiscal year for many mutual funds and was therefore the last day they could make adjustments to their portfolios in order to report those changes in their next annual reports. Finally, the market was technically stuck in “no-man’s land” between support and resistance on the intraday charts, but really just a trading range on the daily charts. Throwing these elements together created the mess that we saw yesterday, which by the way will eat your profits up if you overtrade. Perfect example of a SOH (sit on hands) day.
There are a total of 12 different economic numbers scheduled to be released today, including Unemployment Rate for October at 8:30 am EST. So, it could get a bit choppy again today because of those numbers. Also keep in mind that there is an FOMC meeting next week and traders will be placing bets on whether or not the Feds cut rates again. By the way, did anyone notice that the last umpteen rate cuts didn’t do much to prop up the market?
The selloff into the late afternoon yesterday positioned the market to move lower by creating additional overhead resistance on the intraday charts. Most significantly, the S&P and Dow Jones are now both back BELOW their 20-week moving averages. This means that neither index was able to sustain that critical support level. The 20-week MA will now serve as resistance instead of support. However, many indexes and sectors are coming into support of their 50 and 20-day moving averages, which may prevent the market from selling off too much. But if those levels are broken, we could test the yearly lows once again.
Today’s watch list:
SPY – SPYDERS (S&P 500 Index Tracking Stock)
Trigger = HALF at 88.14, HALF at 87.50 (below yesterday’s low, then below the 50-day MA)
Target = 86.25 (support of the 20-day MA)
Stop = 88.90 (above resistance of yesterday’s close)
Notes = If SPY breaks below yesterday’s low, it will be back down near the lows of the consolidation channel, further increasing the odds of a breakdown of major support. As mentioned in today’s commentary, SPY is also back below its 20-week MA, which should now create additional resistance. We will short a HALF position below the lows of yesterday and add another half position below the 50-day MA around 87.50.
DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)
Trigger = HALF at 83.60, HALF at 83.10 (below the 20-MA on the 60 min., then below low of Oct. 30)
Target = 82.15 (support of the 50-day MA)
Stop = 84.20 (above resistance of yesterday’s close)
Notes = Similar play to the SPY short above. Additionally, many of the largest components of the Dow are looking a bit top-heavy here, which could aid in a collapse of the Dow.
Daily Reality Report:
Click here to read the details on how we calculate our Reality Report statistics.
“Swing” trades (per The Wagner Daily)
SMH long –
bought 24.50, sold 24.45, points = (0.05), net P/L = ($49)
RTH short –
shorted 75.00, stopped out at 75.37 (avg.), points = (0.37), net P/L = ($80)
Intraday trades (per Intraday Updates E-mail Service)
SPY short –
shorted 88.85, covered 88.56 (avg.), points = + 0.29, net P/L = + $44
DIA short –
shorted 83.87, covered 83.77 (avg.), points = (+ 0.10, net P/L = + $13
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