Commentary:
Well, the best way to summarize yesterday’s trading action is that is was more choppy than a sushi chef with a brand new set of Ginsu! Yesterday was clearly an example of why it is so challenging to trade intraday during a news-driven market. Because there was not much conviction on either side of the market, it was a day filled with numerous false breakouts and breakdowns that ignored trendlines and key support/resistance levels. Furthermore, a rumor that the Homeland Security Dept. was expected to raise the Terror Alert level from Orange to Red hit the markets in the early afternoon. This immediately caused the market to sell off sharply and set new lows of the day. However, the U.S. promptly denied the rumor which sent the market back up to briefly set new highs before heading back south again! In case you were lucky enough to miss yesterday’s trading session, the intraday chart of SPY below pretty much sums it up:
Although total market volume was not impressive, it wasn’t that bad either. Both the NYSE and Nasdaq volume came in just slightly lower than the previous day and its 5-day moving average. While light volume days tend to lead to choppy market conditions, yesterday was more the result of indecision than lack of interest. We also found it interesting that yesterday’s trading range in the broad market was one of the most narrow-range days of the year. There’s not much more to say about yesterday except the best thing you could have hoped for is that you were at the beach somewhere instead of trading.
Intraday trading action is likely to become more and more skittish in the coming days as traders grow nervous about the allied troops’ impending approach into Baghdad. In the short term, the direction of the market will largely be based on the number of surprises we encounter as the war progresses. If, as some have speculated, chemical weapons are used, the market would almost certainly see a sharp, although perhaps short-lived, selloff. On the other hand, if things go better than the market is expecting and no chemical weapons are used, it could spark another rally. Although we rarely spend much time discussing news events, instead preferring to rely on technicals, the reality is that the market is more driven by news right now than technicals.
From a purely technical look at the market, the daily and weekly charts still look bullish and are consolidating for what we expect to be another leg higher. However, the shorter-term intraday charts are messy. Therefore, we feel the best intraday trading strategy for now is to shift into SOH (Sit On Hands) mode. While SOH mode is boring, it will protect your capital and that is always your number one goal. Also, multi-day and multi-week position trades seem to make a lot of sense right now because they will enable you to potentially profit from the bullish looking daily and weekly charts, but have the added benefit of preventing you from getting chopped around on an intraday basis. But, as we have been discussing, make sure you hedge any long positions in case of unexpected and negative news.
Today’s watch list:
Keep an eye on EWJ, the ETF for Japan stocks, for a potential multi-week trade entry. The Nikkei has been showing signs of bottoming and EWJ is beginning to show relative strength. Primarily, we are looking for a break over $6.90, which is the weekly trendline resistance and the 20-week MA. This may or may not happen anytime soon, but just wanted to give you a heads-up.
Per the commentary above, we do not see a positive risk/reward for entering any new positions today, especially because the intraday charts are mostly in the middle of their ranges and because of the news-driven environment. However, if we come across any low-risk trade setups, we will send an e-mail alert. In the meantime, we’ll just focus on managing our open positions of BBH and QQQ from March 25.
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).
Closed
Positions:
-
(none)
Open Positions:
-
BBH long (from March 25) –
bought 93.05, stop at 89.20, target of 101.20, open points = + 0.55, open P/L = + $53
QQQ long (HALF position from March 25) –
bought 26.14, stop at 25.10, target of 28.75, open points = + 0.42, open P/L = + $81
Notes: Per an e-mail alert, we cancelled the DIA short entry yesterday based on choppy market conditions. Both BBH and QQQ are intended to be “multi-week” trades with loose stops and significant profit targets. We will trail the stops higher as the trades become more in the money. Note that we only have a 1/2 position of QQQ so far. It’s a good idea to hedge these trades with options (either long puts or short calls) based on the uncertainties of the war situation.
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
change.
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
updates.
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 trading day.
Unless
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