We finally had a steadily trending day that enabled us to profit on some solid trading opportunities yesterday. As I commented yesterday, patience is key in trading. Even though we were basically flat all week up until yesterday, our discipline enabled us to profit from several low-risk, high-reward trades yesterday which turned our week profitable because we didn’t dig a hole earlier in the week. The key is not focusing on making profits every day, but rather keeping losses very tight and limiting the quantity of trades on choppy days. This enables you to keep all your profits on the good days like yesterday.
After the major market indices gapped down on the open, we were watching for a possible reversal to the upside going into the 9:50 am reversal period. When the market failed to reverse and set a new high by 10:00 AM, we started watching for short opportunities on the major market indices (SPY, QQQ, and DIA). Upon breaking support of the previous day, we took a short position in DIA, SPY, QQQ and SMH (since the Semis were very weak). By 12 noon EST, the major market indices were testing the lows of November 5 which prompted us to take profits on our short positions before the mid-day doldrums.
After remaining in a tight trading range for the next two hours, SPY, DIA, and QQQ each attempted to rally through their 20-MAs on the 15 minute charts. When we saw a failure of the reversal attempt, we re-entered HALF share positions of each of those short positions. The major indices again set new lows, which prompted us to take these short positions overnight with a solid profit buffer.
Putting all fundamental issues aside, yesterday was a technically significant day because the S&P and Dow both broke support of the uptrend line from the lows of October 10. Take a look at the chart of the SPY below:
The break of the trendline is a very important technical factor because that former support level now becomes overhead resistance. If the market fails to break the highs of this past week, that means that the S&P will have set a double top off the highs of August 22 which could potentially set the market up for a significant selloff.
Going into today, the key resistance levels to watch on the upside are the lows of November 5, which also correlates with the highs of the past several weeks of consolidation. On the S&P futures, that level is the 905 area (91 on SPY). For the Nasdaq, the resistance to watch is at 1033 (25.65 on QQQ). These levels are roughly the same as the 40-period MAs on the 60-minute charts. If we stay below these levels, we’ll look to continue to trail our stops lower on the short positions. Otherwise, we will cover our shorts and wait to see what happens because there is too much overhead resistance for any clear long positions right now.
Today’s watch list:
XLF – Financial Select SPYDER
Trigger = 22.30 (below yesterday’s low and the 20-day MA)
Target = 21.75 (support of the 50-day MA and the gap from Oct. 15)
Stop = 22.55 (above resistance of the 20-day MA)
Notes = We have been watching the financial stocks for a break of support, which finally came yesterday. XLF, a diversified financial ETF, is now sitting on support of its 20-day moving average. However, the primary uptrend line was broken yesterday on big volume, which could cause XLF to break below the 20-MA. If this happens, it will probably test the 50-day moving average, which also correlates with support of the gap from October 15. Since XLF has a low beta, its average daily trading range is only about 60 cents. Therefore, you may want to consider taking a slightly larger position size than normal (if it triggers) to compensate for the low volatility.
Daily Reality Report:
Click here to read the details on how we calculate our Reality Report statistics.
“Swing” trades (per The Wagner Daily)
SPY short –
shorted 91.75, covered 91.02 (avg.), points = + 0.73, net P/L = + $114
Each of the following are all HALF share positions:
SPY short –
shorted 90.92, will set stop and email alert after open, paper points = + 0.16, paper net P/L = + $11
DIA short –
shorted 86.22, will set stop and email alert after open, paper points = + 0.17, paper net P/L = + $12
QQQ short –
shorted 25.59, will set stop and email alert after open, paper points = + 0.05, paper net P/L = + $12
Intraday trades (per Intraday Updates E-mail Service)
SMH short –
shorted 25.35, covered 24.97 (avg.), points = + 0.38, net P/L = + $207
SMH short (re-entry; HALF position)-
shorted 24.79, covered 24.57 (avg.), points = + 0.22, net P/L = + $57
QQQ short –
shorted 25.87, covered 25.57 (avg.), points = + 0.30, net P/L = + $157
DIA short –
shorted 86.70, covered 86.38 (avg.), points = + 0.32, net P/L = + $50
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