It finally happened this time! Both SPY (S&P 500 Index) and DIA (Dow Jones Industrials) CLOSED ABOVE their 200-day moving averages. As we have been discussing, both indexes have traded above their 200-day MAs four times during the past two weeks, but yesterday market the first day that both indexes’ closing prices were actually above that level. In fact, yesterday was the first day SPY has closed above its 200-day MA since March of 2002, over one year ago! Needless to say, this is a VERY significant technical event that could propel the broad market much higher from here, assuming both indexes hold above their 200-day MAs today as well.
Although the momentum started out slowly yesterday, each of the major indices had settled into an intraday uptrend by late morning, followed by a long period of sideways consolidation that lasted most of the afternoon session. Since the afternoon price consolidation was just below the 200-day moving averages for both SPY and DIA, it seemed likely that the market would attempt to break their 200-day MAs into the close, which is exactly what happened. With only thirty minutes remaining, each of the three major indices broke out of their trading ranges to set new intraday highs before finally closing on their highs. This final spike into the close caused both SPY and DIA to close above their 200-day MAs and put QQQ back above its 26.00 resistance level.
Based on the low volatility trading range we have been seeing for the past several weeks, we knew a break to one side or the other was coming soon and it looks like it finally came yesterday. Now the big question is whether or not we will see any follow through in today’s session. My one concern is that despite the intraday uptrend and breakout yesterday afternoon, total market volume remained very light yesterday, whereas we normally would see a corresponding spike in volume on the day the market breaks out. However, if you look at an intraday chart of volume for yesterday, you will see that the volume did indeed dramatically increase during the final thirty minutes of trading when the breakout occurred. It’s just that volume was so light in the prior six hours of the day that there was not enough time for the increasing volume to make up for the lethargic volume that we saw earlier in the day, especially in the morning.
More importantly than the total market volume was that the advancing volume to declining volume ratios were very bullish yesterday. Whereas we have mostly seen negative ratios or positive ratios of only two to one, yesterday’s advancing volume in the NYSE outnumbered declining volume by more than 6 to 1! This important market barometer shows us that despite light volume, there were very few bears out there. The ADVV/DECV ratio for the Nasdaq was also bullish at nearly 4 to 1. New highs outnumbered new lows by about 4 to 1, further confirming the positive breadth yesterday. Other market internals such as the TICK and TRIN also were bullish yesterday.
For SPY and DIA, the key support levels to watch today are obviously the 200-day MAs because prior resistance should become the new support level once the resistance is broken. This means that SPY should find support of its 200-day MA at 88.53, while the 200-day MA for DIA is at 83.56. On the upside, assuming we open above yesterday’s highs, watch the highs of March 21 and April 7 as resistance points. The highs of those two days marked the peak and subsequent breakout attempt of the rally that started March 12. For SPY, those key resistance numbers are 89.88 and 90.85. For DIA, the resistance is at 85.36 to 85.40. The daily charts of SPY and DIA below illustrate these levels:
QQQ has been trading differently than SPY and DIA because QQQ is already above its 200-day MA and has been for over a month. 26.00 continues to be a key support/resistance level for QQQ. If the Qs are not able to stay above 26.00, expect this level to continue acting as resistance. However, if QQQ opens above 26.00 and stays above it, that level should once again become the new price support. The most overhead resistance on QQQ is around 26.15 – 26.20, which is the high of the past two days AND the 20-day MA. If QQQ trades and holds above 26.20, it is a much safer bet for going long.
In addition to the key support/resistance levels mentioned above, you obviously want to watch total market volume closely today for confirmation of the breakout. If the breakout is to be sustained, we should see a substantial increase in today’s volume for both the NYSE and Nasdaq. Assuming there is follow-through in the volume spike we saw during the final thirty minutes of trading yesterday, volume should continue to increase. Several banks such as Bank of America and Citigroup released positive earnings numbers yesterday and there is talk on the street that continued positive results from the financial sector will be the impetus that Wall Street has been looking for to lead the broad market higher out of its current trading range. So, keep a close eye on XLF (Financial Services ETF) and other leading companies in the sector.
Today’s watch list:
Since we are already in three positions going into today, we are not listing any other setups for today because we want to confirm the S&P holds over its 200-day MA first. We have a few setups we are watching for possible entry and will send you an e-mail alert if we decide to enter any of them. Otherwise, we’ll focus on managing the open positions coming into today.
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, sold at 55.60, points = + 0.17, net P/L = + $6
SPY long (from April 14) –
bought 88.34 (avg.), stop at 88.35, target of 90.80, unrealized points = + 0.61, unrealized P/L = + $119
QQQ long (from April 14) –
bought 25.89 (avg.), stop at 25.80, target of 27.20, unrealized points = + 0.14, unrealized P/L = + $54
IEF short (1/2 position from April 9) –
shorted 85.87, new stop at 86.25, target of 84.00, unrealized points = + 0.60, unrealized P/L = + $57
OIH hit our trailing stop yesterday, locking in a small profit. However, many of you out there probably did not get stopped out because OIH only traded at our stop price momentarily before heading back up. If your stop was with ARCA, you probably got stopped out, but if your stop was through an exchange, you probably did not. Either way, we are accurately reporting OIH as being stopped out because it did hit our stop.
As a courtesy to non-subscriber of the ETF Real-Time Room, we sent aan intraday e-mail alert yesterday to let you know we bought SPY and QQQ and were taking both long positions overnight. As such, we have added these trades under “open positions” above. We had a nice profit buffer going overnight and the market is gapping up this morning, so it should work out well. We will send another e-mail alert if we make any changes to our stops. We are also still long BBH and EWZ from trades we called in the ETF Real-Time Room last Friday.
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