Commentary:

Yesterday was an interesting day filled with uptrends and breakouts
above key pivot points in the morning, but weakness and indecision over the FOMC
meeting in the afternoon. The major indices each closed higher on the day, but
closed near the middle of their intraday ranges. The close in the middle of the
intraday range left tails on top of the daily candlestick bars of each of the
major indices and also causes us to think the market will see a price correction
within the next several days.

Hopefully you took my advice on writing
down the key resistance points for each of the broad-based indices yesterday
because they would have come in handy during the trading session. Several
technically significant things happened yesterday that you need to be aware of.
First, SPY (S&P 500) closed above its prior resistance of 93.86, which was
the high of January 13. SPY traded as high as 94.38 intraday and closed at
93.91, setting a new high of 2003. However, SPY only closed 5 cents above its
prior high and the rally wasn’t as powerful as it should have been given the
strong volume. This tells us that the S&P may have been under distribution
today and to beware of a potential reversal today. The market typically has a
“hangover” on the day after Fed meetings and we usually see the real reaction to
the meeting the next day. Although rates were left unchanged, there were some
comments made by the Feds that could potentially be interpreted by the market as
negative, but we won’t know until we see today’s action. Nevertheless, we are
suspicious of SPY going much higher today, but if it does, the next resistance
point to watch is the December 2 high we spoke of yesterday.

The Nasdaq
continues to show relative strength and the Nasdaq Composite (COMPX) actually
closed above its December 2 high yesterday, although only by a few points. Even
though the Naz Composite closed above its December 2 high, the Nasdaq 100 index
(and QQQ) did NOT close above the December 2 high. Therefore, we lacked the
confirmation we needed to see. Like the S&P, we feel the Nasdaq will correct
within the next day or two and are watching QQQ for a short setup today. While
we feel QQQ will go higher over the next several months, it is getting a bit
overextended in the short term and the divergence yesterday, combined with the
December 2 highs, cause me to think we will see a short-term price correction.

The Dow (and DIA) just won’t get moving, despite having broken above its
ascending triangle and weekly downtrend line. Of the three major broad-based
indices, DIA was the only one that actually traded below its morning low
yesterday when it sold off in the afternoon. Both QQQ and SPY also sold off, but
held their morning lows. Bottom line is the Dow is still showing relative
weakness, so we dumped our long position in DIA yesterday for a scratch because
it’s not acting right. As we have been saying over the past month, the relative
weakness in the Dow is the one key factor that could let the air out of the
tires and kill the rally attempt we are seeing in the intermediate term.

Going into today, our initial bias is to the short side based on the way
the broad-based indices showed weakness yesterday afternoon. However, as you
know, just because the market began showing signs of weakness and is
over-extended does not mean it cannot go higher if momentum gets behind it.
Although we are entering the day with a few short setups in mind, we are fully
prepared to reverse directions if we see strong buying in the morning,
particularly if we take out yesterday’s highs.

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Today’s watch list:

IWM – iShares Russell 2000 Index Tracking Stock (Small Caps)

Short

Trigger = below $81.78 (break of uptrend line from low of May 1
(also below low of May 6 and high of May 5)
Target = $80.45 (support of
uptrend line from low of April 11)
Stop = $82.35 (above yesterday’s close
and afternoon “swing high”)

Notes = The small-cap index have been very
strong, but is now approaching resistance of its December 2 high, which is
likely to cause at least a small correction in the way of a Fibonacci
retracement. This is probably an intraday trade, as opposed to a “swing
trade,” but will make decision based on weakness/strength of IWM into the close.

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QQQ – Nasdaq 100 Index Tracking Stock

Short

Trigger = below $28.47 (break of uptrend line from low of May
1)
Target = $27.90 (support of uptrend line from low of April 11)
Stop =
$28.74 (above high of May 5 and yesterday’s close)

Notes = Trade is
discussed in commentary above. Again, the Nasdaq has been strong, but is showing
signs that it is likely to correct soon. This is probably an intraday trade, as
opposed to a “swing trade,” but will make decision based on weakness/strength of
QQQ into the close.

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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:

WMH long (1/2 position from April 23) –
bought 34.83 (avg.), sold 36.07,
points = + 1.24, net P/L = + $60

SPY long (from May 6) –

bought 93.69 (avg.), sold 93.90 (avg.), points = + 0.21, net P/L = +
$36

DIA long (from May 5) –
bought 86.09, sold 86.13 (avg.),
points = + 0.04, net P/L = + $2

Open Positions:

WMH long (1/2 position from April 23) –
bought 34.83 (avg.), stop raised
to 35.70, target of 39.25, unrealized points = + 1.22, unrealized P/L = +
$56

We are still long 1/4 position of EWJ from 6.24, as called in
the ETF Real-Time Room over a week ago (listed here as a courtesy to
non-subscribers). Japan’s Nikkei continues to recover steadily and we have an
unrealized gain of over 8% so far.

Notes:

We sold another
1/4 position of EWJ into strength yesterday (as initially called in the ETF Real-Time
Room) for a profit of + 0.51 (over 8% gain) and are still long 1/4 position.
We also sold half of WMH into strength yesterday and netted a profit of over 1.2
points, but are still long the second half of the position with a tight stop. We
scaled into SPY as it broke out yesterday, sold half near the high (before the
FOMC meeting), then sold the rest when it hit our trailing stop after the FOMC
meeting. We used the same exit strategy on DIA to basically scratch the trade.
Only open positions now are 1/2 position of WMH and 1/4 position of EWJ. Wanted
to be mostly cash overnight.

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