The moving average and Fibonacci convergence we spoke of in yesterday’s Wagner Daily perfectly acted as support, aided by pre-market retail data, enabling the major indices to close significantly higher on the day. All the major indices began yesterday with a gap up above the 20-MA on the 15 minute chart, which was previously acting as resistance the previous day. A strong buying surge out of the gates propelled the Nasdaq above the previous day’s high within the first fifteen minutes of trading, and the S&P and Dow broke the previous highs within forty-five minutes of opening trading. Because the market was in a steady downtrend and closed at the lows the previous day, this created what is commonly known as a “bear trap” because it essentially “trapped” the shorts who anticipated follow-through to the downside. The “bear trap” further aided the rally as shorts were forced to cover, enabling a steady uptrend to continue until 12 noon EST.
As we often see going into the daily “mid-day doldrums,” the market began pulling back almost exactly at noon and continued selling off down to a 50% retracement of the intraday range before finding support near the 20-MA on the 15 min. chart. The 20-MA on the 15 minute time period is one of the best moving averages to watch for intraday support and resistance levels on the indices. With rare exception, the indices tend to find support or resistance at that level, depending on whether prices are trading above or below the 20-MA. The chart of SPY below illustrates this concept:
As you will notice in the chart above, SPY (and the S&P) had a difficult time rallying back above the 20-MA after hanging out just below if for an hour. Although we anticipated the market would set a lower high and trigger another wave of selling into the final hour, a sudden surge of buyers caused the S&P futures to rally back to the mid-day high. However, the Nasdaq showed relative weakness and barely moved, unable to rally back to the mid-day high. Because the final hour of trading on a day like yesterday is often unpredictable, it is usually wise to not enter new positions at that time of day. It would have been risky to short the bounce, but buying the bounce in hopes of a new high being set would not have been a much better option.
The major indices are each poised to break some pretty important resistance levels going into today. A rally above yesterday’s highs in SPY and DIA could propel both indices up to their 200-day moving averages, which is the next significant resistance level. Yesterday’s high in both SPY and DIA helped form the upper channel of the downtrend from the highs of December 2. The chart of SPY below illustrates how a rally above yesterday’s high would probably send SPY up to its 200-day MA. The DIA (Dow Jones) chart looks very similar:
You may already be aware that while SPY and DIA are still several points below their 200-day MAs, QQQ (the Nasdaq-100) actually closed above its 200-day MA yesterday. There is a double top a few cents below 27.00 on QQQ from the highs of yesterday and January 7. Therefore, a high-volume rally that holds above 27.00 is nearly a “no-brainer” to buy due to support of the 200-day MA below. However, keep an eye on SMH and the Semiconductor Index because the Semis were weak yesterday, closing near the lows. Unless the SOX can get moving again, it is doubtful that QQQ will break out. Finally, be aware of several economic jobs reports due before the open today and those reports are likely to set the tone of trading, at least for the morning session.
Today’s watch list:
OIH – Oil Service HOLDRS
Trigger = above 55.35 (break of yesterday’s high)
Target = 56.50 (just below 40-MA/60 min.)
Stop = 54.70 (just below 20-MA/60 min.)
Notes = Although this ETF is largely driven by Iraq news, it has been out of sync with the broad market and we therefore anticipate it could rally if market is weak today (sector rotation again).
SPY – SPYDERS (S&P 500 Index Tracking Stock)
Trigger = HALF above 93.20, HALF above 93.55 (above yesterday’s high, add above Jan. 6 high)
Target = 95.50 (200-day MA resistance)
Stop = 92.20 (just below 20-MA/60 min.)
Notes = Setup described in commentary above.
Daily Reality Report:
Trades from The Wagner Daily only (ETF
Intraday Real-Time Room trades reported separately on a weekly basis):
RTH worked out great for us yesterday and we kept half the position overnight. We also had nice profits on QQQ, SPY, and DIA long trades yesterday.
- RTH long (HALF position from Jan. 8) –
bought 70.27 (avg.), sold at 70.99,
points = + 0.72, net P/L = + $34
We also did a round trip in RTH yesterday for a profit, as well as round trips in QQQ, SPY, and DIA for a profit. Will send P/L on those trades later today as separate email.
- RTH long (HALF position from Jan. 8) –
bought 70.27 (avg.), will set stop and send e-mail alert after open,
open points = + 1.58, open P/L = + $79
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