The most important thing to note about yesterday is that total market volume was so light that it is difficult to draw any valid conclusions about the near-term direction of the market. Total market volume in the Nasdaq was the lightest day we have seen since March 11, one day before the March rally began. Volume in the NYSE was not much better. Total market volume in both the NYSE and Nasdaq was well below their respective 5-day moving averages yesterday, a sign which indicates declining market participation. When volume drops below its 5-day moving average, the best strategy is usually to shift into SOH mode (sit on hands) because low volume generally equates to low volatility and choppy price action, both of which make it difficult to profit from intraday trading. On a positive note, however, we did see a reversal in the ratio of advancing volume to declining volume yesterday. For the first time since April 2, advancing volume outnumbered declining volume by a ratio of more than 2 to 1 in the Nasdaq yesterday. NYSE ratio was 1.49 to 1. Although total market volume was light yesterday, these ratios indicate a majority of the volume was on advancing issues, a bullish signal. But, like I mentioned, we need to see the volume increase in order to get any kind of confirmation from these signals. Remember that volume is the most important technical indicator and is one of the few leading indicators at your disposal because most indicators lag the market. That’s why we place so much emphasis on volume in our daily commentary.
The major indices continue to be in a trendless “no-man’s land” on the daily charts and we are still getting mixed signals about the near-term direction of the markets. This leads me to believe we may remain in a narrow, sideways range for a while. SPY formed a bullish “hammer” candlestick pattern on its daily chart yesterday which would normally point to higher prices over the next several days. However, the problem is that SPY now has overhead resistance of the prior trendline from the low of March 12 that was broken yesterday. Remember that once a support level such as a trendline is broken, that same trendline now becomes the new support. The chart of SPY below illustrates this:
Here is an intraday, 15-minute chart of SPY that allows you to see the trendline resistance a little better:
In addition to the trendline, there is a lot of price resistance from the past week that SPY must get through on the upside. In particular, there is resistance of the 200-day moving average at 88.64 and the more immediate resistance of the 20-WEEK moving average on SPY at 87.87 (don’t forget about those weekly charts). However, SPY should now find support at its 20-day moving average, which is at 87.23.
The DIA chart looks very similar to SPY in that it also formed a “hammer” yesterday and rallied to close right at resistance of its prior uptrend line from the low of March 12. Key levels to watch on DIA are as follows: 82.21 (support of 20-day moving average), 82.88 (resistance of 20-WEEK moving average), and 83.65 (resistance of 200-day moving average). It’s a good idea to simply write these price levels down and keep them in front of you so that you can quickly glance at the key levels to watch on SPY and DIA throughout the day.
As you know, QQQ has been trending slightly differently than SPY and DIA and its daily chart is basically just a choppy mess right now. There is big support just below QQQ’s current price at the 22.50 area, which is the convergence of both the 20 and 50-WEEK moving averages. However, there is now a lot of overhead resistance around 26.00 just overhead. Because 26 served as a big support level for several weeks, it will now equally serve as a tough resistance level that will require a lot of buying volume to get through. If QQQ gets through 26, it will face its 20-day moving average at 26.21. Although the daily chart of QQQ is messy, the weekly chart continues to look bullish. For example, QQQ is the only one of the three major broad-based indices that is ABOVE both its 20 and 50-week moving averages. More importantly, the 20-week MA has crossed over the 50-week MA, indicating a change in the weekly trend of QQQ. The last time the 20-week MA was above the 50-week MA was in October of 2000, as the bull market was ending. It looks to us like the best way to play QQQ right now is either to scalp it for tiny profits OR to take a position and sit on it for several weeks with a stop below the 25.50 area.
Today’s watch list:
OIH – Oil Service HOLDR
Trigger = above $56.60 (above yesterday’s high and the 20-week MA)
Target = $59.40 (just below 100-week MA)
Stop = $55.70 (below 20-MA/15 min.)
Notes = OIH was very strong yesterday and we day traded it in the ETF Real-Time room and made a nice profit. However, the weekly chart of OIH looks great and is poised to break trendline resistance if OIH goes over yesterday’s high. Therefore, we will look to take a position over 56.60 with the intention of holding several days to a week. If OIH gaps up too much today, we will look for a pullback to enter. Use the MTG Opening Gap Rules as a guide.
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.
RTH short (from April 9) –
shorted 73.45, covered 72.85, points = + 0.60, net P/L = + $57
DIA short (1/2 position from April 10) –
shorted 81.90, covered 81.96, points = (0.06), net P/L = ($9)
IEF short (1/2 position from April 9) –
shorted 85.87, stop at 86.70, target of 84.00, unrealized points = + 0.14, unrealized P/L = + $25
The DIA short setup from yesterday triggered, but we only took 1/2 position and covered prior to the original stop due to broad market choppiness. SPY never hit its trigger due to weakness in the morning. RTH was closed for a profit using the 5-minute high rule on the open. IEF looking better.
We also took a 1/2 position of SPY long overnight, as called in the ETF Real-Time Room. For those of you who are active traders and have not tried out the Real-Time Room yet, you may wish to do so because there are additional intraday plays announced each day that are not listed in The Wagner Daily. Just e-mail us if you would like a free trial (assuming you have not already had one).
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