Welcome back from the Thanksgiving holiday weekend. We hope you had a safe and fun one! By now, you should have also received instructions for logging into the new ETF Real-Time Room that launches today. If you have not received login instructions, please notify us right away.
If you missed trading on Friday’s shortened session, there’s not a lot to be said and few conclusions can be drawn because of the shortened trading day and extremely light volume. Volume on the NYSE was 632 million shares, while volume on the Nasdaq checked in at only 840 million shares. Even after being pro-rated for the shortened trading day, volume was still much lighter than the average of the past five days (which is not surprising). Because of the light volume, not much credence can be given to either the bullish or bearish side.
The S&P futures (and SPY) gapped up above the previous day’s high (which was also the high of the week), but the gap faded and brought the S&P back into the trading range near Wednesday’s highs. Going into noon, the S&P again attempted to break above the November 27 highs, but sellers prevented the S&P from breaking out again as the S&P closed near its lows of the day, below consolidation of the previous day’s highs.
The Nasdaq (and QQQ) traded in a similar pattern to the S&P on Friday, but showed a lot more relative weakness and actually closed near the previous day’s lows. The SOX (Semiconductor) index was one of the weakest sectors on Friday, closing down just over 2% on the day. Biotechs were also weak and closed down about 1%.
Going into today, we want to watch this pre-market gap and see how well it holds up after the first thirty minutes of trading. If the gap is sustained, there is a good probability that Friday’s highs in the S&P (and possibly the Nasdaq) will be broken. If that happens, there is less risk in entering new long positions because there is not much overhead resistance until the highs at the end of August (91 area for DIA and 96 area for SPY). The Nasdaq futures (and QQQ) continue to wrestle with the 200-day moving average, which has acted as a magnet over the past several days, both propping QQQ up and also holding it down. Although QQQ has traded above its 200-day moving average three times during the past week, notice how it has been unable to actually close above the 200-day MA:
A closing price above the 200-MA in the Nasdaq would be considered quite bullish and would cause that level to begin acting as the new price support. However, the weekly chart of the Nasdaq, which gives us a bigger picture of what is happening, could potentially be setting up a bearish reversal based on the doji star that was formed last week, along with resistance from the lows of September 2001. Take a look:
When volume returns to the market today, we’ll get a better idea of whether there is enough momentum to carry this market to new highs. We think it is probable the market will hang out near its current prices and maybe trend higher through the end of the year, based on seasonal buying patterns. However, keep an eye on those weekly charts which are all showing the major indices as approaching key resistance levels. As always, remember to trade what we see, not what we think.
Today’s watch list:
SPY – SPYDERS (S&P 500 Index Tracking Stock)
Trigger = 94.90 (above resistance of Friday’s high)
Target = 96.25 (resistance of the high of Aug. 27)
Stop = 94.20 (below support of the 20 and 40 MAs on the 15 min. chart)
Notes = If SPY breaks above Friday’s highs, there is not much resistance until the highs of Aug. 27. Since the market is gapping up this morning, remember the gap rules before entering this position.
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 (HALF position from Nov. 29) –
shorted 29.60, will adjust stop once market opens (based on whether the gap holds), open points = + 0.30, open net P/L = + $68
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