Friday’s trading session resumed the consolidation that began taking place on April 2 as both the S&P and Dow consolidated in a tight range, but the Nasdaq showed relative weakness. Overall, it was a lackluster day that failed to provide us with any solid intraday trading opportunities, so we just focused on managing our open “swing trade” positions rather than attempting to enter new intraday trades. This saved us a lot of headaches because the narrow range of the intraday chop was not conducive for intraday trading, but was ideal for adjusting the share size of multi-day positions. Perhaps the most important thing that occurred on Friday was that the gap from April 2, as well as the low of April 3, both served as support for SPY (S&P 500) and DIA (Dow Jones 30), although QQQ (Nasdaq 100) traded slightly down into the gap. The 15-minute chart below illustrates how the gap acted as support for SPY on Friday’s narrow, range-bound day (the DIA chart looks similar):
Notice how even though SPY tested the low of the day numerous times, the previous day’s low and the gap from April 2 both acted as support. Large gaps often serve as support once the market enters a consolidation period, so the best place to set your stops if you are long is just below the high of the gap. If the gap gets penetrated, it will usually get filled. However, QQQ never dropped into the gap enough to confirm its weakness.
As you know, we have been building long positions in anticipation of SPY breaking its 200-day moving average and subsequently its prior March highs. The 50% Fibo retracement level we saw last week has perfectly held as support and the major indices have been consolidating near the highs of the April 2 gap for the past three days. This consolidation (correction by time) is bullish and will likely cause SPY and DIA to gap above their 200-day MAs. We have learned through experience that major indexes often break above their 200-day MAs in the form of a large opening gap as opposed to opening below the moving average and then slowly rallying through it. Most importantly, you may recall that a break above the 200-day moving average of SPY will also correlate with a break of a downtrend line that has been in place since March of 2002 (over a year). We also listed the price at which the trend will change in this week’s Wagner Weekly. The weekly chart of SPY below illustrates the break of trendline resistance that will occur if it trades above its 200-day MA, which is at $88.87:
There is a huge pre-market opening gap right now which the media will attribute to the invasion in Baghdad having transpired rather smoothly. While this certainly gives the bulls an excuse to buy, we also know, and have known for the past week, that the technical picture on the daily and weekly charts is beautiful and poised to break out. Therefore, today’s premarket gap doesn’t really surprise us and we are fully prepared with four different long positions from over the weekend. Because the gap is so large and puts SPY/DIA above their 200-day moving averages AND prior resistance of their weekly downtrend lines, it is NOT likely the gap will be filled. If the gap holds into the first thirty minutes of the day, odds are that the market will either trade sideways or head higher. We will employ a trailing stop strategy with our open positions and will be e-mailing you intraday alerts with all the new stop prices. We will also consider adding to our 1/2 position sizes if we see ideal entry points.
With SPY and DIA above their weekly downtrend line resistance, they now join QQQ, which broke above its weekly downtrend line a few weeks ago. This means that all three of the major indices will have technically broken their weekly downtrends, which is a very significant turning point for the broad market that could potentially set a positive tone for the rest of the year. But, it’s still a bit too early to tell if the rally will fizzle out when the war is over or if it will be sustained. Remember to look to volume for clues. Congrats to all those who were patient during the past week and followed our trades over the weekend.
Today’s watch list:
Since we are already in our maximum of four simultaneous open positions, we are not listing any additional new trade setups today. We will instead focus on managing our open positions and will update you of any changes to stops or profit taking via e-mail alert. As we scale out of these long positions over the next several days, we will look for retracements to buy back into the market at better prices.
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).
BBH long (1/2 position from March 25) –
bought 93.05, stop at 92.40, target of 101.20, open points = + 4.15, open P/L = + $206
QQQ long (from March 25 and April 2) –
bought 26.14 (avg.), stop at 25.60, target of 28.75, open points = (0.09), open P/L = ($39)
IWM long (1/2 position from April 3) –
bought 75.13, stop at 74.30, target of 76.40, open points = (0.60), open P/L = ($32)
SPY long (1/2 position from April 3) –
bought 88.54, stop at 87.40, target of 90.80, open points = (0.32), open P/L = ($33)
In addition to the four open positions above, we also bought just a 1/4 position of DIA in the ETF Real-Time Room on Friday and held it over the weekend, but we are not listing it above since it was not a Wagner Daily call. As mentioned in the commentary above, we will e-mail you with updated stop prices on all the open positions after the market opens.
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