Well, not a whole lot to say about yesterday because it was essentially a repeat of the previous day (Feb. 19). It was another narrow-range, slow-bleed day in SPY that was okay for scalping quick profits, but not much more. In particular, the last two hours were very volatile, as we often see on light volume days. QQQ was really a snoozer yesterday and traded sideways in basically a 20-cent range the entire day. Although yesterday saw a very slight increase over the previous day, NYSE total market volume once again was very low and registered below both the closely watched 5 and 50-day moving averages. The Nasdaq volume came in just slightly above its 5-day moving average.
Going into today, keep a close eye on the Semiconductor Index (SOX) because it seemed as if the only reason the market held up yesterday was due to strength in the Semis. Without it, I think both the Nasdaq and S&P would have been sharp downtrending days because most sectors were red yesterday.
Because of the narrow range and light volume we have seen over the past few days, be on the lookout for a trending day today. Despite the slight downtrend we have seen over the past couple of days, the markets are acting slightly to the bullish side on an intermediate term basis. In particular, major Fibonacci support levels are holding and the selloffs we are seeing intraday are minor and on light volume. We found it particularly interesting that yesterday’s close now puts the S&P on support of Fibonacci convergence that is equal to the 0.382 Fibo retracement from the lows of Feb. 13 to the high of Feb. 18 and on the 0.50 support level from Feb. 14 to Feb. 18. This provides us with a relatively low-risk entry point on the long side, especially if the market gaps down slightly. We can put stops just below yesterday’s low to provide an ideal entry point for multi-day swing trades on the long side.
Remember that today is Options Expirations Day, which always occurs on the third Friday of each month. While this will probably cause an increase in total market volume today, price action tends to be volatile and whippy on expiration days, especially in the late afternoon. As such, we will look to complete most of our intraday trading in the morning session and will only be in overnight “swing” trades in the late afternoon.
Today’s watch list:
SPY – SPYDERS (S&P 500 Index Tracking Stock)
Trigger = HALF above 84.63, HALF above 85.05 (above 40-MA/15 min., add above upper channel of downtrend from Feb. 18)
Target = 87.10 (high of Jan. 29, which is also 50% Fibo retrace off daily downtrend)
Stop = 83.90 (below yesterday’s low)
Notes = Depending on how the market closes today, we intend to hold this trade for several days with a multi-point profit target, despite options expiration. If SPY gets back in the upper channel of the past three days, we think odds are good that SPY makes another leg higher on the daily chart up to the 50% Fibo retracement (as seen in the chart above). Buying on the pullback of the past two days makes the trade lower risk. As always, we will look to trail a stop higher over the next several days.
DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)
Trigger = HALF above 79.85, HALF above 80.55 (above 40-MA/15 min., add above upper channel of downtrend from Feb. 18)
Target = 81.75 (price resistance from late January highs)
Stop = 79.20 (below yesterday’s low)
Notes = This play is very similar to SPY above. Again, we intend to hold this trade for several days with a multi-point profit target, despite options expiration. If DIA gets back in the upper channel of the past three days, we think odds are good that DIA makes another leg higher. Buying on the pullback of the past two days makes the trade lower risk. We will look to trail a stop higher over the next several days.
SMH – Semiconductor HOLDRS
Trigger = below 22.75 (below yesterday’s low and the close of Feb. 19)
Target = 22.15 (200-MA on 60 min. chart; also the 0.382 Fibo retracement)
Stop = 23.05 (above yesterday’s close)
Notes = The Semiconductor sector (and SMH) have been strong and showing relative strength over the past several days. However, if the market shows any weakness today, odds are good that we will see sector rotation and negative money flow out of the Semiconductor sector and into some of the sectors that have been weak lately.
Our initial bias coming into the day is to be on the long side and there is a good chance this trade setup may not even trigger. However, we want to be prepared with a good short setup if the market fools us and goes lower today. If the market gaps down, remember the MTG Opening Gap Rules before shorting SMH. Also bear in mind that this trade will likely be an INTRADAY trade as opposed to a SWING trade (if it triggers) because of the small price target and stop.
Daily Reality Report:
Below is Morpheus Trading Group’s daily performance report of closed trades and an update on all open positions from The Wagner Daily (ETF Intraday Real-Time Room trades are reported separately in The Wagner Weekly).
PPH short (HALF position from Feb. 20) –
Shorted at 70.70, new stop at 70.70 (breakeven),
open points = + 0.60, open P/L = + $29
Notes: Per our e-mail alert, we attempted to short PPH yesterday into a bounce at 70.80, but it dropped so quickly that we only got filled with a partial position, ten cents below our initial entry target. Nevertheless, PPH showed relative weakness yesterday and the trade is working out well so far. We have an open profit of 60 cents going into the day. Because of Options Expiration, we may look to cover PPH into an opening gap down rather than wait for our initial target of 68. Will send alert when we decide to cover.
Click here for a detailed explanation of how daily trade performance is calculated.
Click here for a detailed cumulative report of MTG’s trading performance (updated weekly)
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