Friday’s market action ended the week much in the same way it began — with a large opening gap up and subsequent selloff into support of the previous day’s trading range. With the exception of the opening gap up that enabled us to sell our long overnight positions in SPY (S&P 500) with a solid profit, the day was largely uneventful. Due to the light total market volume and narrow range, the afternoon session did not provide any intraday trading opportunities that offered a good risk/reward ratio. With the exception of a few ETFs we bought for multi-day “swing” trades, we remained mostly in cash on Friday and protected the profits we netted from the opening gap.
Volume continues to remain very light for both the NYSE and Nasdaq. Total market volume for the NYSE was only 1.11 billion shares, the lightest volume day since February 19. The Nasdaq’s volume was 1.23 billion shares, the lightest day since March 10. This tells us there is a continuing lack of interest on either side of the market right now and is confirmed by the relatively narrow daily trading range of the past few weeks. In addition, the CBOE Market Volatility Index (VIX) dropped pretty sharply during the past week, further confirming the lack of conviction.
Did you notice where the opening rally in both SPY and DIA (Dow Jones 30) stopped on Friday? I’ll give you a hint — It is the level I have been telling you to closely focus on nearly every day during the past week. That’s right, the 200-day moving average. Interestingly, Friday marked the FOURTH time in two weeks that both SPY and DIA attempted to break their 200-day MAs by trading above them intraday, but failing to close above the 200-day MA every single time! The daily chart of SPY below illustrates this:
It goes without saying that the almighty 200-day MA will continue to be the key resistance level to watch in the coming days. For SPY, the 200-day MA is at 88.59 and it is 83.61 for DIA. If SPY and DIA cannot break above and, more importantly, CLOSE above their 200-day MAs soon, there is a good chance the major indices will lose support of the recent trading range and head back down to test their March lows.
For QQQ (Nasdaq 100), the key support level to watch is the 25.50 area, right where it closed on Friday. This 25.50 area represents the convergence of both the 20 and 50-WEEK moving averages. Since support and resistance levels on a weekly chart have more significance than those same levels on a daily chart, this level is very important. On the upside, the 26.00 – 26.25 area will continue to serve as resistance. Watch the 20-day MA which is at 26.20.
Although we could dissect the intraday charts and point out minor trendlines and support/resistance levels, the bottom line is that each of the major market indices are essentially in a sideways trading range that has been in effect for a month.
The longer the daily trading range continues, the stronger the next trend will be when it finally comes. Think of the recent volatility contraction as a giant coil that is getting compressed tighter with each passing day that the trading range continues. Eventually, the coil will be released and the tighter it is compressed, the higher it will spring. The one unknown that remains is which direction the coil will spring. If SPY and DIA eventually close above their 200-day moving averages, it will also represent a break of weekly trendline resistance that will undoubtedly propel the broad market significantly higher (assuming volume is decent). On the downside, a failure to hold the lows of the 50% Fibo retracement levels from March 31 would represent a break of trading range support that would send the broad market back down to new lows of the year.
While the intraday trading has been lackluster during the past week, there are individual sectors and international ETFs that are showing relative strength to the market. As such, we have been building positions in these sectors to position ourselves in the event of a sudden break out of the trading range. With the news-driven nervousness of the war winding down, the market will begin to follow technical patterns once again. This decreases our overall risk of taking “longer-term” positions as long as we have a solid plan for both taking profits and cutting losses if we are wrong. While intraday trading can provide consistent monthly income, it is the multi-day and multi-week trades that build the wealth. We will capitalize on both by continuing to make intraday trading calls in the ETF Real-Time Room, and making the “swing” and “core” trade calls in each day’s Wagner Daily.
Today’s watch list:
OIH – Oil Service HOLDR
Trigger = above $56.60 (above yesterday’s high and the 20-week MA)
Target = $60.80 (just below Feb. 25 high)
Stop = $55.20 (below 20-day MA)
Notes = We bought OIH in the ETF Real-Time Room when it retraced on Friday. We then sold half of the position intraday and took the second half over the weekend. Therefore, this setup is to add the SECOND HALF of the position once it confirms the breakout above the two-day high. Since we bought OIH at 55.43 on Friday, our new average price will be around $56.00 if the second half of the buy triggers.
In addition to the daily chart shown above, the weekly chart of OIH also looks pretty interesting because OIH is poised to break both its 20-week MA and, more importantly, a weekly downtrend line that has been intact since May of 2001! Therefore, we want to be patient with this setup in anticipation of that breakout.
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.
OIH long (1/2 position from April 11) –
bought 55.43, new stop at 55.20, target of 60.80, unrealized points = + 0.78, unrealized P/L = + $38
IEF short (1/2 position from April 9) –
shorted 85.87, new stop at 86.40, target of 84.00, unrealized points = + 0.36, unrealized P/L = + $35
We took 1/2 position of OIH long over the weekend per an intraday update e-mail alert that was issued Friday afternoon and are still short 1/2 position of IEF from April 9.
In the ETF Real-Time Room, we sold SPY into Friday’s opening gap up and netted nearly a point. We also bought 1/2 position of BBH and EWZ to hold as multi-week “core” trades. As always, results from all calls made in the ETF Real-Time Room will be summarized in the next Wagner Weekly.
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