Commentary:
After beginning the day with a sharp opening selloff that tested the previous day’s lows, the S&P 500 reversed and rallied to new intraday highs within the first hour of trading. From that point forward, the index traded in a sideways consolidation pattern, within a very tight range of about 3 points for the remainder of the day. Although the S&P futures made several breakout attempts in the afternoon, each breakout failed and the S&P eventually closed in the middle of the previous day’s range. Since both the intraday high and low were contained within the range of the previous day, yesterday was an “inside day.”
The Nasdaq followed a similar pattern to the S&P yesterday in that it began the morning with a test of the previous day’s low before reversing and breaking out to a new intraday high. However, the Nasdaq showed relative strength to the S&P yesterday, largely on the heels of strength in the Networking Index (NWX). Unlike the S&P, the Nasdaq Composite rallied and closed above resistance of the previous day’s high, right at the key psychological resistance of the 1700 level. The two charts below illustrate the divergence between the S&P and Nasdaq:
Since the Nasdaq closed above the previous day’s high, there is less resistance in that index going into today because any sellers who wanted out have already done so. However, the S&P and Dow both have to still contend with sellers from the previous day’s high (August 13). The Dow probed above the previous day’s high on an intraday basis, but closed below it. This technically makes a double top over the past two days, but the time frame is short.
The strength in the Nasdaq Composite (COMPX) yesterday caused the index to close just above its 20-day moving average, which is at 1697. Since the S&P 500 Index also closed above its 50-day moving average yesterday, all three of the major indices are now trading back above both their 20 and 50-day moving averages. A large-scale power blackout hit the East Coast after the U.S. markets closed, which initially had a negative impact on the after-hours futures markets. However, once terrorism was ruled out, the futures recovered later in the evening. For now, we are looking at a relatively flat opening from yesterday’s closing prices.
I would be really cautious going into today because of the power failure issue. Although the NYSE is scheduled to open at regular time under backup power, I expect that many institutions and “big money” will stay on the sidelines until businesses resume back to normal. Furthermore, it is a sunny Friday in the middle of August, when many traders begin their vacations/holidays. Because of all these reasons, volume is probably going to be even lighter than it has been recently. As you know, light volume often creates choppy conditions, along with false break outs and break downs. To be honest with you, today is a good time to take a three-day weekend if you are able. Go ahead, the market will be waiting for you when you return on Monday.
Today’s watch list:
Due to the fact that I will not be around to manage any open positions next week (due to vacation/holiday), there are no new trade setups for today.
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:
-
DIA short (1/4 position size from August 13) –
shorted 93.50,
covered 93.10, points = + 0.40, net P/L =
+ $19
OIH long (from August 14) –
bought 59.05,
sold 58.39, points = (0.66), net P/L = ($69)
Open Positions:
-
EWJ long (1/3 position size from July 15 – 17) –
bought 7.81 (avg.),
stop at 7.55, target of 8.80, unrealized points = + 0.04, unrealized P/L = + $10
Notes:
DIA short hit our trailing stop after the broad market reversed, locking in a 40 cent gain on the remaining shares. EWJ also went green yesterday and we remain long 1/3 position size with stop at 7.55.
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