Commentary:

Today’s commentary will be brief because essentially not a darn thing happened in the market yesterday. Given Monday’s sharp intraday selloff, one would expect the market to correct by time the next day and that is exactly what occurred. The major indices each traded in an extremely narrow sideways range the entire day and light volume was the culprit. Total market volume in the NYSE was the only 1.2 billion shares, the lightest day we have seen since March 10, two days before the rally began. Volume in the Nasdaq was proportionately as light. We attempted only a few intraday trades yesterday and were stopped out, despite being cautious about overtrading during choppy market conditions. In summary, we went into yesterday morning with mixed signals that hinted at both bullish and bearish action and neither one happened. Therefore, the technicals essentially look the same going into today and those same mixed signals exist.

Although it briefly probed a few cents below 26.00 yesterday, QQQ has been building a solid base of support at the 26 level that needs to hold in order for the prior break of weekly trendline resistance to remain in effect. While the 26.00 level in QQQ could ultimately become a launching pad that propels QQQ much higher, it could equally become a huge resistance level IF the Nasdaq-100 breaks below this level with conviction. Therefore, keep a close eye on this 26 level over the next few days and be ready to either buy or sell short because it is likely we will see a significant, tradeable move off this level one direction or the other. Note that yesterday’s low in QQQ was exactly equal to the lower channel support of the uptrend from March 12. Therefore, a break below yesterday’s low in QQQ is a clear short setup. The daily chart of QQQ below illustrates this:

For both SPY and DIA, the key support level to watch is the high of the gap up from April 2. So far, the gap from this day has been acting as a base of support for both the Dow and S&P. However, IF either SPY or DIA trade down into the gap, it is likely to become filled, thereby triggering a short setup. Remember that the 20-day moving average lines up with the lower channel support of the daily uptrend as well. On the upside, the 200-day moving averages remain the clear resistance points to watch for both of these indices, but both SPY and DIA now have support of their 20-WEEK moving averages below. Therefore, even though Monday’s breakout failed, I would not be surprised to see both SPY and DIA make another attempt at breaking their 200-day MAs. If that happens, we will once again be taking long positions because that will put both the Dow and S&P above their weekly trendline resistance levels, which is technically very significant.

Remember also keep an eye on market volume, our most important technical indicator. Remember that volume is the fuel that is necessary in order for both breakouts AND breakdowns to be sustained. Therefore, nothing is likely to happen in either direction unless volume picks up today. The bottom line is it’s time to be mostly in cash again until the market shows its hand.

I am beginning to sense that the market has begun factoring in the war as being a non-event and trading will resume to being driven by fundamentals and technicals more so than news. Case in point is today’s pre-market opening weakness, despite positive news that the war is going very well in Baghdad. Therefore, I caution you against putting too much creedence in basing your trading decisions on war outcome. This past Monday was probably one of the last major reactions you will see to the war.

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Today’s watch list:

RTH – Retail HOLDR

Short

Trigger = below $73.50 (below yesterday’s low)
Target = $72.00 (lower channel support of daily uptrend)
Stop = $74.25 (above yesterday’s close)

Notes = The Retail sector seems to have gotten a little ahead of itself and RTH is now testing its 200-day MA on the downside again. It seems likely that RTH will fall back down to its 20-day MA, which also lines up with the uptrend line, before heading back up again, especially if there is weakness in the broad market.

Remember that you can follow $IRH.X, which is the index for the Retail HOLDR. By following the index, you get a better idea of the true fair value of RTH which can assist you in placing limit orders to buy/sell RTH. Also remember that the position size of RTH is only 50% of SPY based on the MTG Position Sizing Model. Finally, remember the MTG Opening Gap Rules since it is likely to gap down on the open.

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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). Net P/L figures are based on the quantity of shares represented in the MTG Position Sizing Model.

Closed
Positions:

QQQ long (1/2 position from March 25 and April 2) –
bought 26.14 (avg.), sold 26.20, points = + 0.06, net P/L = + $6

SPY long (1/4 position from April 3) –
bought 88.54, sold 88.56, points = + 0.02, net P/L = $0

QQQ short (1/2 position from April 8) –
shorted 25.91, covered 26.10, points = (0.19), net P/L = ($44)

Open Positions:

(none)

Notes:

Per yesterday’s newsletter, we closed the remaining shares of our long positions in QQQ and SPY by selling into strength in the pre-market yesterday. We then attempted to short 1/2 position of QQQ when it broke support yesterday, but the market was too choppy and we were quickly stopped out. We were cash overnight from calls made in The Wagner Daily, although we took HHH short overnight per a call in the ETF Real-Time Room.

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)

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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.

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Yours in success,

Deron M. Wagner