Commentary:
There’s not a whole lot to say about yesterday’s market action except that the major indices once again consolidated in a narrow range, trapped between support and resistance pivot points that have been intact for the entire week. Just like the previous day, the major indices gapped up to the highs of the week, only to get slammed back down in the morning session before subsequently recovering to close near the upper third of the range. The tug-of-war between the bulls and bears continues to become more obvious. QQQ (Nasdaq-100) found resistance just below 29.00 for the fifth time yesterday, but also failed to drop any lower in price. The four-day chart of QQQ below clearly indicates the support and resistance levels that have been created by QQQ during the past week (SPY chart looks similar):
As you can see, there really has been nothing happening in the broad market for the past several days except that prices are consolidating in a narrow range. It makes sense to be mostly cash until a definitive break either above or below the trading range occurs. We are only short a 1/2 position of QQQ, but will quickly cover if it breaks above 29.00. Since we shorted near the highs of the current trading range, our risk/reward ratio is positive on the short side in the event the market fails to breakout, as volume is indicating it will.
Total market volume in both the NYSE and Nasdaq yesterday was the highest of any day this week, but the market failed to break above the four-day trading range. This confirms the market is “spinning its wheels” because volume is increasing, but higher prices are failing to correspond with the increase in volume. This continues to show a bearish distribution pattern in which we are seeing selling into strength. However, the major indices are so close to breaking above their trading ranges that we must be aware of any potential breakouts to new highs of the week.
I’m writing today’s Wagner Daily from the MTG trading suite at the Aladdin Casino and Resort in Las Vegas, NV. Yesterday was Day 1 of our first-ever live ETF trading workshop and we had a great time! All the workshop attendees are learning a ton of excellent information on topics such as: how to do end-of-day ETF scanning and research, determining the strength or weakness of a breakout based on volume analysis, assessing relative strength of various market sectors, and much more. The workshop went so well that nobody wanted to leave and we ran all the way until nearly 8:30 pm. As a special bonus, we had an excellent view of the full lunar eclipse last evening from the 180 degree panoramic view of our trading suite, as well as a superior view of the Bellagio water show. Today is Day 2 of our live ETF trading workshop and is the day during which I personally will trade my own account and explain my thought process real-time. Since we have the wi-fi network set up in the suite, many attendees brought their laptops and have high-speed wireless access right from the comfort of their seats. It should be great today! As a final note, remember that today is option expiration day and it is likely to be choppy in the afternoon as institutional traders move the major indices toward their strike prices.
Today’s watch list:
DIA – DIAMONDS (Dow Jones Industrial Average Tracking Stock)
Long
Trigger = above 87.80 (above yesterday’s high)
Target = 88.80 (resistance of the January high)
Stop = 87.30 (below support of yesterday’s close)
Notes = Although the major indices are still in a sideways trading range, we are prepared to buy the breakout if it comes. Otherwise, the best play is to remain in SOH (sit on hands) mode and preserve capital by not overtrading.
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:
-
(none)
Open Positions:
-
QQQ short (1/2 position re-entry from May 14) –
shorted 28.55, stop at 29.03, unrealized points = (0.38), unrealized P/L = ($72)
Notes:
QQQ initially gapped up above our stop price on the open, but we used the “5-minute rule” to adjust the stop to 29.03, just above the high of the first 5 minutes, of which QQQ never traded up to. 29.03, just above the consolidation, remains our stop going into today.
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