Commentary:
Friday was a “quadruple witching” day, meaning that options contracts
for stocks, indexes, futures, and single stock futures simultaneously expired.
These “quadruple witching” days, which only occur once per quarter, usually
bring a lot of volatility and erratic moves to the broad market because the “big
money” takes large positions in an attempt to move their underlying positions to
the options strike prices that will benefit them the most. However, Friday was a
relatively calm day with a choppy, narrow range. Although the broad market began
the day with an opening gap up, all three of the major indices closed at or near
their intraday lows, basically flat on the day. Interestingly, Friday marked the
second consecutive day in which the broad market failed to attract a mass of
buyers into the final hour of trading. Prior to last Thursday, we were seeing a
consistent daily pattern of buying during the final hour of every day that was
preventing the market from closing weak. But that has not been the case the past
two days.
Interestingly, the 1000 level on the S&P futures acted
perfectly as resistance for the first half of last Friday. Remember that large
round numbers such as 1000 often act as psychological support or resistance
levels because many retail traders and investors set their stop orders just
above or below them. Just as 1000 previously acted as support, it has now become
the new resistance level (remember that prior support becomes the new resistance
once the support is broken). The 15-minute intraday chart of the S&P futures
below illustrates how the 1000 level (purple line) acted like a magnet on Friday
morning. Notice also how the 200-period moving average (blue line) and 50-MA
(green line) converged to provide additional resistance around 1000:
Overall, the broad market remains in a confirmed and clearly defined
uptrend. At this point, Morpheus Trading Group interprets the selling of the
past two days to be nothing more than a normal price correction, one that was
long overdue. Until the market gives us reason to act otherwise, we have to
assume the uptrend will continue and take a stance of buying the pullbacks to
trendline support. We have been short the past several days only because the
broad market remains above support of its daily uptrend line. However, we will
be looking to shift our bias to the long side as soon as the market stabilizes
on trendline support. Where exactly is the trendline support? Basically, the
20-day moving averages will be the first major technical level to provide
support for each of the major indices. Just below the 20-day moving averages is
the actual trendline. For easy visual reference, I have annotated daily charts
of SPY (S&P 500), DIA (Dow Jones Industrials), and QQQ (Nasdaq 100) below:
As you can see, each of the daily charts above look similar. In addition
to the 20-day moving averages and the mechanical trendlines, there is also Fibonacci
support just below the 20-day moving averages in each of the major indices. If
you draw Fibonacci lines from the May 20 lows to last week’s highs in each of
the broad-based ETFs, you will see that the 38.2% Fibonacci retracement level
converges in the area of the uptrend line. I left the Fibonacci lines out of the
charts above in order to avoid clutter, but you may wish to check it out on your
own.
Given the convergence of the 20-day moving averages, daily uptrend
lines, and Fibonacci support, it seems pretty likely that the broad market will
attempt to bounce pretty hard as the major indices approach these levels within
the next several days. When we see confirmation at that point, we will be
looking to position ourselves on the long side of the market with stops just
below trendline support. However, until that happens, our bias is neutral. While
the market could sell off for another day or two, the highly anticipated FOMC
meeting begins tomorrow and all eyes will be on the amount of the Fed rate cut.
We believe that the market is largely anticipating a 1/4 point cut, so anything
higher or lower than that could send the market for a shock. Since the meeting
does not begin until tomorrow, many traders are likely to be on the sidelines
today, waiting for the meeting. Therefore, watch for potentially light volume
today and remember that the market tends to be choppy and sometimes volatile
when volume is light.
Today’s watch list:
HHH – Internet HOLDR
Short
Trigger = below 37.86
(below low of last week)
Target = 36.80 (daily trendline support)
Stop =
38.40 (above last close)
Notes = Remember to follow $HHI.X, which is the
index for the Internet HOLDR. It has a smaller spread than HHH, so it is ideal
for letting you know what the fair value is and what price to place limit
orders.
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:
- (none)
Notes:
There were not any new trades entered last
Friday and we were 100% cash over the weekend.
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