Commentary:
After a minor price correction that caused the major indices to close near the lower channel support of their daily uptrend lines on May 8, the market resumed the uptrend on Friday, leaving the two-month uptrend line perfectly intact. Not surprisingly, the Nasdaq once again showed the most relative strength on Friday. Market breadth was pretty good overall and most importantly, the Dow even closed slightly higher (on a percentage basis) than the S&P 500 Index on Friday. As we have been discussing over the past two months, the Dow’s inability to keep pace with both the S&P and Nasdaq has been a cause for concern because we feel it is unlikely that the broad market will sustain a rally without the Dow in sync with the rest of the major indices. However, the Dow has begun keeping pace during the past two days, which bodes well for the market’s ability to continue the rally. Total market volume was light on Friday, which is something we want to keep an eye on this week. However, it’s not a big cause for concern yet because the volume was probably light because the correction of the prior two days took out the sellers who wanted to be out.
The major indices each closed near their key pivot points that we were discussing for most of last week. To refresh your mind, the primary pivot point for the Nasdaq Composite is the “swing high” of December 2, while the pivot point for the S&P 500 remains the high of the calendar year, which was set on January 13. The Nasdaq Composite (COMPX) closed at 1520 on Friday, exactly one point below the December 2 high of 1521. SPY (S&P 500 Index) closed at 93.73 on Friday, just below the January 13 “swing high” of 93.86. Friday’s intraday high in SPY was 93.80, just six cents below the January 13 high. The two daily charts below illustrate these pivot points for both the S&P 500 (as represented by SPY) and the Nasdaq Composite (COMPX):
As you can see, the key resistance levels to watch going into this week are pretty clear: 1521 for the Nasdaq Composite and 93.86 for SPY. We follow the Nasdaq Composite rather than QQQ because QQQ only tracks the Nasdaq 100 Index, while the Nasdaq Composite Index is not only more broad-based, but also more closely followed by the general public (who creates support and resistance levels). As you know, the major indices each traded slightly above these key resistance levels on May 6 of last week, but were not able to sustain the closing prices above them. Therefore, the resistance levels to watch going into this week are simply the highs of last week. If the highs of last week are broken in each of the major indices, it will also correlate to a close above the respective December 2 and January 13 resistance levels for the Nasdaq and S&P.
Because each the Dow, S&P, and Nasdaq are each trading above resistance of their weekly downtrend lines, the intermediate term outlook for the broad market remains slightly bullish. However, the 20-week moving average in both the S&P and Dow has not yet crossed over the 50-week moving average, which would officially signal a strong change in trend. The bullish crossover occurred several months ago in the Nasdaq, but the S&P and Dow have been the laggards. The daily uptrend line remains intact for the broad-based indices and the break above their weekly moving averages remains intact, both of which are bullish indicators. However, if the S&P fails to break its January 13 high and the Nasdaq Composite fails to break its December 2 high very soon, it means we could enter into a choppy consolidation period, rather than resuming the uptrend. As always, either way is fine with us. We’ll continue to trade in the direction of the trend, which for now is up.
Today’s watch list:
There are no additional ETFs on the watch list today since we are already in three open positions. Will send you an e-mail update if we spot any additional opportunities with a good risk/reward ratio. If the broad-based indices break last week’s high, we will definitely want to buy SPY, DIA, and/or QQQ. Otherwise, it will probably be a bit choppy.
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:
- OIH long (1/2 position from May 8) –
bought 58.20, sold 59.32, points = + 1.12, net P/L = + $53
Open Positions:
-
OIH long (1/2 position from May 8) –
bought 58.20, stop raised to 59.10, target
of 60.90, unrealized points = + 1.38, unrealized P/L = + $63
XLP long (from May 8) –
bought 19.29, stop raised to 19.25, target
of 20.00, unrealized points = + 0.14, unrealized P/L = + $55
BBH long (1/2 position from May 8) –
bought 100.25, stop raised to 100.25, target
of 103.90, unrealized points = + 1.25, unrealized P/L = + $60
Notes:
We raised the stops on each of the open positions as noted above. We also took profits on 1/2 of the OIH position on Friday and still have half of the position open. We also added to BBH on Friday, but sold for a scratch because BBH was not showing relative strength at the time (although it did later in the day). Therefore, we still only have 1/2 position of BBH, rather than a full position. We also profited from long trades in DIA on Friday in the ETF Real-Time Room, but that will be reported on the next weekly newsletter rather than here.
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
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.
Yours in success,
Deron M. Wagner