Yesterday was primarily another news-driven day in the markets caused largely by afternoon speeches by Hans Blix, Donald Rumsfeld, and Colin Powell, the three key people on the Iraq situation. Although none of them really said anything news, the market seemed to have a difficult time deciding whether to interpret the mostly hawkish comments as a positive or negative for the markets. This resulted in a choppy roller coaster ride for the major indices such as SPY, QQQ, and DIA and each of them oscillated between their lows of the day to their respective highs several times throughout the session. This lack of direction required us to be in cash most of the day, although we did have a couple of slightly profitable scalps (quick, low profit trades) in the ETF Real-Time Room. Even though some of the intraday rallies and selloffs had decent price ranges, it was tough to find any CLEAR and LOW-RISK technical entry points on both sides of the market. The 5-minute intraday chart of QQQ below clearly illustrates the indecision in the markets yesterday:
Because of the choppiness with a slight bullish bias yesterday, we quickly covered our QQQ short setup (from yesterday’s Wagner Daily) within a few minutes of entering the trade. This enabled us to keep our loss less than half of what it would have been if we had waited for the original stop of 24.60 to hit. We did, however, have the right idea that we would see sector rotation out of the Nasdaq (QQQ) and back into SPY (S&P 500 Index) and DIA (Dow Jones Avg.). Within the final two hours of trading, relative weakness could be seen in QQQ. Going into the final hour of trading, SPY and DIA both (barely) rallied ABOVE their highs from the prior breakout around 12:30 pm, but QQQ did not have enough strength to follow suit. The 5-minute intraday overlay chart of SPY and QQQ below clearly shows the divergence in the afternoon:
The most interesting thing that happened was that the trendline we discussed in yesterday’s Wagner Daily, the one from the lows of February 13 connecting with the lows of February 25, perfectly acted as resistance when the market initially attempted to break out around 12 noon EST. This was a clear example of the technical analysis law that states “former support becomes new resistance once that support level is broken.” The hourly chart of SPY below illustrates how that former trendline support stopped the mid-afternoon rally dead in its tracks:
Based on the strength of SPY and DIA into the close, the market is positioned to follow-through to the upside today. However, the problem is that we are not seeing any clear and low-risk long entries in the major indices if yesterday’s highs are broken because of the mess of resistance from the trading range of the past several weeks. In addition, there are many intraday moving average resistance points just over yesterday’s highs on both the 15-minute and hourly charts. In particular, watch the 200-MA/60 min. resistance. So, although the market could rally today, long entries would best be left for scalping (trading in and out quickly).
If you are not interested in scalping or are a beginning trader, then perhaps you may want to consider not trading the broad-based indices on the long side today, unless you are looking at a longer time horizon. You should also keep in mind that the Nasdaq did not follow suit with the rally in the S&P and Dow yesterday. If this happens again today, the Nasdaq is likely to be a drag on the broad market and will cause SPY and DIA to have a difficult time following through. Rallies in the S&P are rarely sustained without the Nasdaq leading the way, so keep a close eye on the Nasdaq futures (or QQQ) today.
Today’s watch list:
QQQ – Nasdaq 100 Index Tracking Stock
Trigger = below 24.40 (below 20-day MA, 200-MA/60 min., and March 4 low)
Target = 23.65 (low of Feb. 14)
Stop = 24.72 (above yesterday’s resistance at 24.70)
Notes = Although we attempted to short QQQ yesterday and were stopped out for a small loss, QQQ is still acting like it wants to roll over here. It showed relative weakness into the close yesterday afternoon and is within pennies of breaking back below both its 20-day MA and its 200-MA/60 min. chart. In addition, a head and shoulders pattern can be seen forming on the hourly chart above. This is likely to be a multi-day “swing” trade if it triggers.
NOTE: In addition to the QQQ short setup, we will be keeping an eye on OIH again today. Even though our last entry for a swing trade stopped us out, OIH is now on a major support level through a combination of moving average convergence, Fibonacci, and trendline support. Odds are pretty good that OIH will reverse today and that perhaps we were a bit early in our entry. So, we will be watching how it acts today and are looking for a possible long entry above 57 and will send an email alert if we decide to enter. We are NOT listing an official trigger or stop price yet because we want to see how it acts today before calling it a long setup. Specifically, watch for a break of upper channel resistance from the high of February 24 for possible re-entry.
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).
QQQ short (from March 5) –
Shorted 24.37, covered 24.47, points = (0.10), net P/L = ($52)
OIH long (from March 4) –
Bought 57.79, sold 56.36, points = (1.43), net P/L = ($146)
Notes: OIH whacked us a little bit yesterday, but we liked the setup when we entered and still like the setup going into today. Often the re-entries are the most profitable trades, so we will be watching it today to see if we were just a little early on our first entry.
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