After beginning the day with a small opening gap down, the major indices
bounced back slightly above the previous day’s consolidation levels before
settling into a narrow and sideways trading range that remained intact
throughout the rest of the day. We profited from long positions in both SPY and
DIA during the first hour of trading, but remained flat for the remainder of the
day (with the exception of the WMH swing trade). Once again, there was relative
weakness in the Nasdaq that acted as a weight on both the S&P and Dow. As
usual, the divergence between the major indices resulted in choppy trading
across the board. The major indices finished mixed with fractional gains in both
the Dow and S&P 500 and marginal losses in the Nasdaq Composite. Total
volume in the NYSE was 6.7% higher, while volume in the Nasdaq declined by 4.4%.
In summary, it was an uneventful and light-volume day because many traders and
institutions were sitting on the sidelines awaiting the Fed’s announcement on
interest rates, due later today.
It is interesting to note that
yesterday was the fourth consecutive day of declining volume in the Nasdaq.
Although we look for increasing volume on days when the market closes higher, it
is actually bullish to have lighter volume on the down days. Even though the
Nasdaq has closed with four consecutive losing days, the decreasing volume of
each day indicates that the buyers are merely taking a break rather than the
sellers aggressively hitting the market. If, on the other hand, volume was
increasing as the Nasdaq was dropping, that would be a bearish signal that the
rally may be running out of gas. Remember that volume is always the most
important technical indicator and the only one that never lies! As such, we
continue to interpret the recent price retracement as a healthy opportunity for
the broad market to absorb its recent gains. Confirmation would occur if volume
increases on the next day the Nasdaq closes higher, which would indicate the
return of the bulls.
We have been talking about the daily trendline
support levels of SPY, DIA, and QQQ over the past several days and it is
important to note that the uptrend line in each of the major indices remains
fully intact. Although DIA (the Dow) is the only one of the three broad-based
ETFs that is still trading above its 20-day moving average, both SPY (S&P
500) and QQQ (Nasdaq 100) are above their trendlines. Both SPY and DIA continue
to hold above their 38.2% Fibonacci
retracement levels from the May 20 lows to last week’s highs, while QQQ is
holding above its 50% retracement. In addition, the longer-term weekly charts
continue to portray a bullish picture. So far, we have not seen any technical
warning signs that the rally is about to end.
The broad market has been
seeing sector rotation out of the Nasdaq and into the S&P and Dow for the
past week. This has caused the Nasdaq to have relative weakness while both the
S&P and Dow have shown relative strength. However, be on the lookout for
rotation back into the Nasdaq within the next day or two because these cycles of
sector rotation typically only last one week before they rotate back in the
other direction. Furthermore, the Nasdaq is trading just above its daily
trendline support and the Nasdaq needs to rally from here in order for the
primary uptrend line to remain intact. If, however, the Nasdaq fails to rally
within the next one to two days, the current trendline will be broken and the
Nasdaq will probably drop to its 50-day moving average, which would also create
some good shorting opportunities. I guess you could say that the rest of this
week is decision time for the Nasdaq, so keep a close eye on both the Nasdaq-100
(QQQ) and the broader-based Nasdaq Composite (COMPX).
As you know, the
Feds will be announcing their decision on interest rates today at 2:15 pm EST.
The market is likely to be a bit volatile in the hours leading up to that time
and is typically extremely volatile immediately after the announcement.
Economists are pretty split on their expectations for the amount of the rate
cut. At last check, slightly more than half expected a 50 basis point reduction
while the rest expected a 25 basis point cut. Practically everyone is expecting
at least a 1/4 point (25 basis point) reduction. Let me remind you that the
actual amount of the rate cut is insignificant to the market in the short-term.
What matters is the market’s REACTION to the rate cut. Therefore, we recommend
you put your personal opinions aside after the decision is made and focus only
on how the market reacts because it often does the opposite of what logic would
dictate. Remember that the market is ALWAYS right, so TRADE WHAT YOU SEE, NOT
WHAT YOU THINK!
Today’s watch list:
QQQ – Nasdaq 100 Index Tracking Stock
above 29.90 (above the 20-MA/60 min.)
Target = 30.60 (resistance of 61.8%
Stop = 29.60 (below yesterday’s close)
= Due to the FOMC meeting today, we will only be buying HALF position size
based on the MTG
Position Sizing Model if QQQ triggers today. As discussed in the
commentary above, we expect the Nasdaq to begin showing relative strength again
due to sector rotation back in the Nasdaq. We are looking to position ourselves
long on the bounce off of trendline support.
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
- DIA long (1/2 position from June 24) –
bought 91.08, sold 91.42 (avg.),
net points = + 0.34, net P/L = + $31
- WMH long (from June 24) –
bought 39.40, stop at 38.20, target at 41.70,
unrealized points = (0.12), unrealized P/L = ($13)
Per yesterday’s Wagner Daily, we bought 1/2 position DIA when
it triggered, but took profits prior to its original price target due to
relative weakness in the Nasdaq, which was holding the Dow down. We also bought
WMH for a swing trade and the position is still open.
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