The best way to describe yesterday was indecisive. Although we began with a sharp opening gap down, the market quickly recovered and entered into a gradual uptrend that remained intact for most of the day. By 3:00 pm, the market had nearly filled the gap from the open, but traders decided to sell into the final hour, which caused the major indices to close near their intraday lows. As we discussed yesterday, much of that action was probably attributed to end of the quarter “window dressing” by the mutual funds, so it’s difficult to say what the true strength or weakness of the market was.
Despite the fact the market remains in a news-driven environment, it was nice to see that solid technical levels are still working well to act as key support/resistance levels. In particular, yesterday’s vicious opening gap down enabled the major indices to immediately find support at their respective 50% Fibonacci retracement levels we discussed in yesterday’s Wagner Daily. Click here to review yesterday’s retracement discussion and charts. To give you an idea of how well each of the major indices have been holding up during the retracement of the past week, let’s take a quick look at their daily charts. We’ll begin by taking a look at SPY (S&P 500 Index):
As you can see from the chart above, SPY briefly probed below its 50% retracement yesterday, but closed above it. It’s also fascinating that the high of the March rally stopped exactly at the 200-day moving average. As of yesterday, the 20 and 50-day moving averages have converged at the 85.15 area, about 40 cents above yesterday’s close. Obviously, these moving averages are important levels and it’s important that SPY quickly rallies back above these moving averages within the next one to two days or else the convergence will begin to act as the new resistance level. Most importantly, SPY needs to hold above yesterday’s low or else it will have retraced more than 50% of the rally, which would significantly decrease the odds of higher prices in the short term. But, for now, it seems likely that the area of price congestion that occurred throughout most of February will act as support for SPY (barring any significant negative war news). If SPY attempts to rally today, the key resistance levels to watch are the 85.15 – 85.20 area (moving average convergence), and then the 85.80 – 85.90 area (38.2% Fibo retracement level, which is also equal to the highs of February). If SPY rallies above both of those levels, yesterday’s high of 86.05 will be an important resistance level. Next we’ll take a look at a chart of DIA (Dow Jones Indu. Avg.):
The daily chart of DIA above is very similar to the SPY chart. DIA closed right on its 50% retracement level and the 20 and 50-day moving averages are approaching a convergence point just overhead of yesterday’s close. For DIA, you basically need to watch the same overhead resistance levels that SPY is facing going into today (the 20 and 50-day MAs, the 38.2% retracement level, and then yesterday’s high). Again, it’s important that DIA holds above yesterday’s lows or else it will be in danger of reversing the uptrend. Finally, here is the daily chart of QQQ (Nasdaq-100 Index):
You will immediately notice that the chart of QQQ is a bit different than SPY and DIA because QQQ closed BELOW the 50% retracement level yesterday. However, before you jump to the instant conclusion that the Nasdaq is showing relative weakness to the S&P, you need to realize one important factor — the Nasdaq has been showing relative strength to the S&P all year. Notice how QQQ’s low of March was HIGHER than it’s lowest point in February, whereas both SPY and DIA traded well below their February lows during the month of March. Also, QQQ is the only one of the three main indices that is still trading in positive territory for the calendar year. This is confirmed by the fact that QQQ is trading ABOVE both its 50 and 200-day moving averages, but SPY and DIA are both below those same moving averages. Therefore, although the Nasdaq has retraced more than 50% of the March rally, it is simply getting back in sync with the rest of the broad market because it had a “head start.” Overall, I would not place too much emphasis on the fact that QQQ has retraced a greater percentage than SPY and DIA. Most importantly, I still love the weekly chart of QQQ, which is clearly showing a break of a two-year downtrend line. Take a look at the weekly chart:
Notice that QQQ broke above the uptrend resistance two weeks ago and has now pulled back to that same level. Because prior resistance becomes the new support level, we expect QQQ to begin finding support here that could ultimately position it for a strong rally that sets new highs of the year. Although QQQ is slightly below its 20 and 50-week moving averages, a greater degree of leeway is required when looking at a longer timeframe such as a weekly chart. In other words, I would not consider a one-day drop with a difference of 30 cents to represent that “QQQ has dropped below its weekly moving averages.” When looking at a weekly chart, those numbers become less precise. So, we maintain our bullish stance (and our long position) on QQQ in the short term, but only if it holds above the weekly trendline shown on the chart above. Even though it goes without saying, remember that war news can easily dominate the market more so than technicals right now.
You may have noticed that total market volume was pretty decent yesterday. In fact, total volume in both the NYSE and Nasdaq was higher than any individual day of last week. While the increase in volume is good to see, we need to be a little bit cautious because declining volume outnumbered advancing volume by more than 3 to 1. This basically means that selling volume was heavier than buying volume (based on trades going off on bid or ask price). In order to confirm the market will hold at the 50% level, we need to see advancing volume begin to outpace declining volume, so we’ll keep a close eye on that going into the rest of the week. For today, remember the key support/resistance levels discussed on each of the major indices above and use those as your pivot points for entering trades or taking profits today. Above all, remain cautious and be prepared for choppy trading.
Today’s watch list:
We had a difficult time locating any low-risk trade setups going into today because we need to confirm that the market is going to hold the 50% retracement level first. Therefore, we will just focus on managing existing open positions, but will send an e-mail alert if we spot any good risk/reward swing trade entries during the day. For now, the market is in “no-man’s land.”
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).
HHH short (from March 31) –
shorted 29.26, covered at 28.85 (avg.), points = + 0.41, net P/L = + $38
BBH long (from March 25) –
bought 93.05, stop at 89.20, target of 101.20, open points = + 0.20, open P/L = + $17
QQQ long (HALF position from March 25) –
bought 26.14, stop at 25.10, target of 28.75, open points = (0.89), open P/L = + ($182)
Notes: HHH hit our profit target yesterday, but its large opening gap down prevented us from maximizing the profits on the short entry yesterday. However, many subscribers to the ETF Real-Time Room were short over the weekend per our call on Friday. This netted over one point of profit on the overnight position of HHH.
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
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