As we have been discussing, volume in the market has been absolutely terrible. Although the week between Christmas and New Year’s Day is traditionally a slow week due to many traders being on vacation, yesterday’s lack of volume exceeded the norm. The Nasdaq traded a mere 815 million shares, while the NYSE only traded 710 million shares. The last time the NYSE traded less volume than that (on a full trading day) was July 5. However, I scanned the total trading volume of the Nasdaq going back to August of 2000 and failed to find a single full trading day that traded less shares than yesterday (excluding 1:00 pm holiday closings)! So, I cannot even tell you the last time we had a full trading day with such light volume in the Nasdaq. To put things in perspective, last year’s Nasdaq volume on December 26 was 1.1 billion shares and the volume on December 26 of 2000 was 1.5 billion shares.
Needless to say, we’re not excited about entering any new positions on either side of the market until volume picks up. As we saw yesterday, intraday trends can reverse in a heartbeat on light trading volume and they can just as easily reverse back the other way an hour later. Decent volume allows markets to trend better, but lack of volume usually accounts for trendless and choppy trading that will take your money faster than you can blink an eye. Furthermore, technical analysis loses effectiveness when volume is light. Therefore, until further notice, we are shifting into “PMC” mode.
“PMC” stands for “Preserve My Capital” and is a new term I coined yesterday in the ETF Real-Time Room. I felt we needed a term to indicate necessary changes to our trading style due to temporarily dangerous trading conditions. When in “PMC” mode, the following changes are recommended to your usual trading style:
1.) Reduce typical share size to minimize broad market risk.
2.) Take profits quicker than usual. Sell into rallies and cover into selloffs rather than trying to ride out a trend with trailing stops.
3.) Most importantly, only enter a trade if there is an extremely compelling reason to do so (such as a great risk/reward ratio).
By shifting into “PMC” mode, our goal is to help you preserve trading capital by keeping you out of the market more than you are in the market until conditions improve. As I have said many times before, there is no reason why you need to be in the market every day. If you feel the need to be, perhaps you should seek your thrills elsewhere because the market will gladly take all your money under current market conditions if you are not disciplined enough to stay out when necessary. Just think about all those small to medium losing days over the course of your trading career, along with the homerun days that you occasionally hit. If you could eliminate half of those losing days by staying out of the market when you realize conditions are not ideal, how much more profitable would you be? My guess is that you would probably double your profits.
It probably goes without saying, but the number one technical indicator we need to watch today and next week is volume. If we see volume start to increase and the market finds some direction, we will shift out of “PMC” mode. But until then, take it easy because there is a lot of indecision out there!
Today’s watch list:
Based on the commentary above, we are not recommending any new plays today. However, if something compelling comes across the radar screen today, we will send you an e-mail alert.
Daily Reality Report:
Because of the increased number of intraday
trades in our new ETF Real-Time Room, we are in the process of modifying the way
we report daily results in order to minimize confusion to subscribers of The
Wagner Daily. We will continue to report and update you on open positions
each morning; you will always know where we stand with any open positions that
were discussed in the newsletter. In addition, all trade statistics will
continue to be compiled as they were before. However, we will be displaying the
summary of all intraday trades (discussed in the ETF Room) only once per week
(in The Wagner Weekly) instead of daily. This is a more efficient and
less confusing way of reporting our trades, especially on days when we enter the
same position two or three times intraday.
Click here to read
the details on how we calculate our Reality Report statistics.
Trades only from The Wagner Daily (ETF
Intraday Real-Time Room trades not reported):
We sold half of our BBH position yesterday to reduce overall risk because we do not like the deteoriating broad market conditions. In addition, we made the decision not to enter yesterday’s SPY short setup due to lack of volume.
BBH long (HALF position from Dec. 23) –
Bought 90.45, sold 89.06, points = (1.39), net P/L = ($72)
BBH long (HALF position from Dec. 23) –
Bought 90.45, stop at 87.75, open points = (1.52), open P/L = ($77)
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)
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.
otherwise noted, average holding time is 1 to 3 days once a position is
triggered. Updates on open positions are provided daily.
Yours in success,
Deron M. Wagner