Wednesday was a prime example of the importance of being aware of economic reports that are scheduled to be released and adjusting your trading plan to minimize risk accordingly. Based on broad-based weakness and closing prices near the lows on Tuesday, the odds statistically pointed to follow-through in the form of a gap-down the next morning. However, we made the decision to take profits on our short positions Tuesday before the close rather than take them overnight due exclusively to the multitude of economic reports that were due out Wednesday morning, most of them pre-market. By focusing first and foremost on managing risk exposure rather than trying to reap every possible dollar of profit, we preserved all our profits from Tuesday’s trading by not being short from overnight and when the market positively reacted to Wednesday’s economic reports.
Because the market was trading up in Wednesday’s pre-market, we attempted a “fade” short-sale on SMH, which was one of the weakest ETFs the prior day. When initiating a “fade,” you simply are initiating a trade in the direction of the prior day’s trend when a pre-market gap is prevalent in the opposite direction. Tuesday’s selloff broke support of a multiple-day consolidation period, leaving significant overhead resistance. Therefore, a gap-up into that resistance usually will come right back down to near the previous days lows due to the abundance of sellers who are attempting to break even into the opening gap. In the case of SMH, we intiated a short position as it gapped right up to its resistance near the whole number resistance of 29.00, which was resistance from the previous day’s swing high that was set around 12 noon. This created a very positive risk/reward scenario in which we were risking 20 cents to make close to a point. Take a look:
Despite the great risk/reward ratio, the market took off when the Chicago PMI index was released at 10 AM, stopping us out for a small loss. After the PMI was released at 10 AM, the market had a huge, parabolic rally that lasted about 20 minutes and did not provide us with any low-risk entry points on the long side because of how fast and furious the rally was. Not surprisingly, the market stayed in a relatively tight trading range after 11 AM and just traded sideways as volume began steadily decreasing for the remainder of the day. Nevertheless, the resilience of the market on Wednesday was certainly impressive and all the major indices are now poised to make another leg higher once they break Wednesday’s highs.
The Nasdaq futures (and QQQ) showed weakness into the final 20 minutes of trading on Wednesday, which caused the index once again to close below its 200-day moving average. However, if the Nasdaq rallies above Wednesday’s highs, the break of the 200-day moving average will probably be sustainable in the short-term.
The S&P futures were relatively stronger than the Nasdaq on Friday because the index closed above the highs of November 22 and 25, which the Nasdaq did NOT do. This leaves the S&P poised to rally to its next price resistance of 956.50 (96.25 for SPY), which equates to the highs of August 27.
The Dow Jones Industrial Average (and DIA) was very strong on Wednesday and closed well above the consolidation highs of the prior several days. The next stop on DIA is probably between 90 – 91, which is huge resistance for a multitude of technical reasons (consult last week’s Wagner Weekly for a look at resistance on DIA).
Remember that our new ETF Real-Time Room will be launched this coming Monday, December 2. All monthly AND trial subscribers are entitled to one free month of service and will be e-mailed login instructions over the weekend. It’s going to be a major upgrade to our current intraday trading alert system. Looking forward to “seeing” you online Monday. Have a great weekend!
Today’s watch list:
Remember that today is a shortened trading day that closes at 1:00 pm EST. Statistically, the day after Thanksgiving usually closes positive, which could easily happen based on Wednesday’s strong action. Therefore, there may be some decent long setups once the indices break above Wednesday’s highs. However, since we are not planning on taking anything over the weekend, any trades we enter will be strictly intraday trades that we will probably be in and out of relatively quickly. We will email an alert to you on any trades we enter, but we are only recommending that more advanced and experienced traders participate in any trades we make today.
Daily Reality Report:
Click here to read the details on how we calculate our Reality Report statistics.
“Swing” trades (per The Wagner Daily)
SMH short –
shorted 28.90, covered 29.10, points = (0.20), net P/L = ($119)
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