Commentary:

Well, there is not a whole lot of commentary to say about yesterday except that the market acted pretty much as expected given the fact that the S&P was sitting on top of price support from last week’s highs, but also had the resistance from Monday’s selloff as overhead supply. When you combine this with the fact that many traders were on the sidelines waiting for the FOMC meeting today, it’s not surprising that we saw such choppiness. Volume on the NYSE was lighter than we have seen during the past few weeks, which aided in the market’s indecision and also confirms that many traders were awaiting the FOMC decision. Not surprisingly, part of the reason the Nasdaq was choppy was due to price divergence between the two biggest sectors that comprise the Nasdaq: Biotechs and Semiconductors. When one index is strong and the other is weak, you are bound to see mixed price performance in the Nasdaq and subsequently QQQ. The best plan yesterday was to either be in cash or to be hedged on both sides of the market (which is what we did for most of the day).

Take a look at a 15-minute chart of the S&P and Nasdaq futures yesterday because they both followed some moving averages and trendlines well:

Although the market was in a trading range for most of the day, you can see that the 15 minute chart of both the S&P and Nasdaq showed several technical indicators that worked well. This is why it is important to always look at multiple time frames and not just a short intraday time frame. You need to condition your brain to constantly be looking for trendlines, moving averages, previous day’s lows, highs and closing prices. These things will always represent significant support and resistance levels and is the basis on which our technical analysis is based.

Despite the choppiness, we squeaked out a profitable day primarily due to our short position in SMH, which was weak due to weakness in the tech sector. We also were long BBH a few times during the day due to strength in the Biotechs. By simultaneously being long one of the strongest sectors (Biotechs) and short the weakest (Semis), we effectively created a hedge to protect against losses and even make a little profit in the event the market broke out to either direction. Obviously, a trending day is much easier to trade and is more profitable, but we probably will not see that until after the anticipation of the FOMC meeting has been resolved.

We do not have any new plays planned for today because we feel it is not a good risk to enter new positions ahead of the Fed’s decision on interest rates at 2:15 pm EST. Despite the pre-market gap up in the markets, we feel trading could become very tricky today because the market is likely to sell off and fade the rally after the Fed announcement, NO MATTER HOW MUCH they cut interest rates. We feel the current prices of the market have already built in anticipation of a 25 basis point rate cut and possibly even a 50 basis point cut. But then again, who really knows how the market will react? It’s really just a craps shoot either way. Just imagine if by slim chance that rates were left unchanged! Hmmm. . . that would certainly throw a wrench into the works.

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Today’s watch list:

As discussed above, we do not like the risk of entering new positions on a highly anticipated FOMC meeting day. Therefore, there are no new plays we are targeting for entry today. Remember that often the most profitable thing to do on days like today is absolutely nothing (other than manage our existing SMH short position). If we see any short-term, intraday trades that offer low risk and a decent potential profit, we will email you an alert.

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Daily Reality Report:

As mentioned above, we made a little profit yesterday and kept ourselves out of trouble primarily by shorting SMH, which was the weakest sector. Just chopped around a bit with BBH and did not trade it very well due to its spread and light volume yesterday. We kept tight stops on our DIA and QQQ shorts, limiting our losses when the market reversed yet again into the close.

Due to the large opening gap, we are going to set a stop on our SMH overnight short once the market opens and we see how strong the Semis are. By setting a stop now, we would likely get stopped out right away on the open, so let’s see how it trades once the market opens first. We will send an email alert to let you know when we are getting out.

Click here to read the details on how we calculate our Reality Report statistics.

“Swing” trades (per The Wagner Daily)

Closed Positions:

SMH short –
shorted 25.91 (avg.), covered 25.42 (avg.), points = + 0.49, net P/L = + $266

Open Positions:

SMH short (re-entry for overnight) –
shorted 25.39, will set new stop after market opens and alert via email, current points = (0.11), current net P/L = ($82)

Intraday trades (per Intraday Updates E-mail Service)

BBH long –
bought 90.17 (bad fill), sold 90.22 (avg.), points = + 0.05, net P/L = + $3

BBH long (re-entry) –
bought 90.65, sold 90.60, points = (0.05), net P/L = ($13)

DIA short –
shorted 86.29, covered 86.58, points = (0.29), net P/L = ($56)

QQQ short –
shorted 25.86, covered 25.90, points = (0.04), net P/L = ($41)

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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.

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Yours in success,

Deron M. Wagner