Although the major market indices began the day with a euphoric start by rallying above the highs of last week, the excitement quickly wore off. Within the first hour of trading, each of the major indices had sold off down to the upper third of the previous day’s trading range. Because volume was light and volatility was low, this is where the market remained for the rest of the day. After chopping around for five hours, the market finally closed within pennies of the previous day’s close.
Yesterday was a good reminder of the importance of constantly assessing the market on multiple time frames with the understanding that charts with a longer time interval have the benefit of removing the noise that is often associated with shorter intraday time frames, especially on a day like yesterday. First, take a look at yesterday’s 5-minute intraday chart of SPY:
Notice how volatile the day initially appears? If you were trading exclusively on a 5-minute time frame, it would have been close to impossible to stay in any positions throughout the day based on the indecisive chart pattern. However, by looking at a longer time frame of the same thing, it appears much different. Now take a look at an hourly (60-minute) chart of SPY and notice the difference:
Quite a different picture, isn’t it? Rather than showing all the choppy intraday moves, yesterday’s market action appears simply as relatively smooth consolidation near the previous day’s high. In fact, if you remove the opening rally and subsequent selloff, you will see that basically all that happened today was the market traded in a sideways pattern at the previous day’s high. Notice how the primary uptrend line was never even violated. Total market volume was light yesterday, but that’s what you expect to see on a consolidation day. The correction by time is actually healthy for the market, BUT you would have never realized this if you were only looking at micro time frames such as a 5 or 15 minute chart. I
Our commentary on today’s broad-market outlook is short because essentially nothing significant has changed since yesterday’s detailed analysis. The same key resistance and support levels we were watching going into yesterday are the same ones we are watching today. Rather than being redundant, you may wish to click here to review yesterday’s Wagner Daily in order to write down the important resistance levels to watch on each of the major broad-based ETFs.
DIA (Dow Jones Industrials) continues to show relative weakness and is the one factor that could spoil the potential breakout and rally that is setting up in QQQ (Nasdaq 100) and SPY (S&P 500). If the Dow does not soon get in sync with the broad market, it is likely to drag the broad market lower because of the weighting and sentiment of this heavily watched index. In addition, the VIX (CBOE Volatility Index) keeps heading lower every day. If interpreted solely by itself, this would indicate the market may potentially be topping. However, the VIX still remains at high levels of the past decade and it could simply be coming back into its normal range. Either way, I contend that we are very likely to soon see a big move in the broad-based indices. Although most signals point to an upside breakout, remember that the market is excellent at doing the exact opposite of what the majority of people expect it to do at any given time. Therefore, stay alert and ready to switch your bias at a moments notice if the market dictates such necessity. As a short term trader, it should not matter to you which way the market goes as long as you are on the correct side. Finally, REMEMBER TO TRADE WHAT YOU SEE, NOT WHAT YOU THINK!
Today’s watch list:
TTH – Telecom HOLDR
Trigger = below 21.90 (below support of 2-day low)
Target = $21.00 (just below high of year-to-date)
Stop = $22.30 (above yesterday’s close and upper channel resistance of hourly downtrend line)
Notes = Telecom sector has been showing a lot of relative weakness lately and is poised to break support on the daily chart, which would cause it to test the low of the year. We will short on a break of the 2-day low. However, remember the MTG Opening Gap Rules in the event it gaps down to open below our trigger price. This means we would wait for a break of the 20-minute lows or a bounce into resistance for better entry price. Though not listed on the MTG Position Sizing Model, the multiplier ratio for TTH is 0.5, meaning that the share size is 50% of SPY.
WMH – Wireless HOLDR
Trigger = HALF above 34.60, add HALF above 35.10 (above weekly downtrend line, then horizontal price resistance at 35)
Target = $39.40 (just below high of year-to-date)
Stop = $32.50 (below “swing low” on daily chart)
Notes = Though WMH has not yet approached our entry point, we want to keep an eye on this and ready to take a position if it breaks the weekly downtrend line as illustrated above. We will then add to the position on a break above 35 and keep a target of 39.40, just below its January highs. If WMH triggers, the time frame on the trade will probably be several weeks to a month, so be aware of that. Position size is 50% of SPY position size, as determined by the MTG Position Sizing Model.
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.
SMH long (1/2 position from April 21) –
bought 26.64, sold at 26.54, points = (0.10), net P/L = ($19)
QQQ long (1/2 position from April 17) –
bought 26.90, sold 26.68, points = (0.22), net P/L = ($50)
SPY long (1/2 from April 17, 1/2 from April 21) –
bought 89.84 (avg.), sold 89.39 (avg.), points = (0.45), net P/L = ($96)
IEF short (1/2 position from April 9) –
shorted 85.87, new stop at 86.25, target of 84.00, unrealized points = + 0.38, unrealized P/L = + $36
SPY long (1/2 position from April 21) –
bought 89.61, stop at 89.10, target 90.80, unrealized points = + 0.04, unrealized P/L = + $2
QQQ long (1/2 position from April 21) –
bought 26.91, stop at 26.65, target 27.45, unrealized points = + 0.01, unrealized P/L = + $1
We sold the overnight positions of QQQ and SPY yesterday (including the SPY shares we added in the morning), but re-entered later in the afternoon at virtually the same prices as the initial entries on April 17. The re-entries are an anticipation play to catch a large potential opening gap up, based on daily chart consolidation. However, we control the risk by only buying 1/2 position sizes for overnight.
We also bought SMH when it broke out yesterday morning, but the breakout quickly failed, prompting us to close the position early to keep losses small. IEF short continues to grind lower each day and we now plan on ADDING another 1/2 position to the short IF it trades BELOW 85.15.
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