Commentary:
The broad market started out on a positive note yesterday and was initially poised to build on the gains of the previous day’s rally, but the early momentum faded, an intraday double top formed in mid-afternoon, and a wave of relatively minor selling followed shortly thereafter. As such, each of the major indices closed approximately 0.2% lower yesterday, but that was not really a big deal considering the gains of the previous day. Volume was 6% higher in the Nasdaq, and slightly lower in the NYSE. This means that yesterday was technically a “distribution day” for the Nasdaq. However, advancing volume in the Nasdaq was slightly higher than declining volume. This means that the “distribution day” was not confirmed by a corresponding increase in sell-side volume. When assessing the true strength or weakness of any given day, comparing the advancing volume to declining volume ratio with the total volume is a great way to confirm whether an index truly had either a “distribution day” or an “accumulation day.” If you only look at the total volume but do not compare the adv/dec volume ratios, you are only seeing half of true picture of what is happening beneath the service.
Taking a look at the hourly charts of the major indices, you will see that yesterday was simply a consolidation day that enabled the broad market to correct by time. Although the S&P 500, Dow Jones, and Nasdaq each closed slightly lower yesterday, the short-term uptrend lines (on the hourly charts) remain intact. I have annotated both the primary and secondary uptrend lines on the hourly chart of SPY (S&P 500 Index) below. Note that I have removed the moving averages in order to allow you to concentrate more easily on the trend lines:
Looking at the chart above, you will see two trend lines. We will refer to the steeper trend line (the blue one) as the secondary trend line. Below that is the primary trend line (in red). As we enter today, watch these two key levels. If support of the secondary trend line is broken, SPY will probably drop to its primary trend line rather quickly. This would create an intraday short opportunity in SPY for day traders, but would be a bit risky for swing traders. But, if the primary hourly trend line is broken, multi-day “swing” shorts would begin to look rather compelling because the bulls who bought during the previous two days would become trapped. However, as long as these hourly trend lines remain intact, our overall bias remains cautiously positive to neutral; we feel there are compelling opportunities for short-selling within select sectors and indexes. Similar hourly trend lines can be drawn for DIA (Dow Jones Industrials) and QQQ (Nasdaq 100 Index), so you may wish to draw those trend lines on your own charting software.
There are several economic reports that are likely to be market movers today, especially due to the lack of other economic news for the next several days. The reports scheduled to be released today are: Jobless Claims at 8:30 am EST, Leading Indicators at 10 am EST, and Philly Fed at 12 noon EST. If you are day trading, beware of these times because the moves in the futures markets could be sharp in either direction given the critical juncture of the market here.
Today’s watch list:
TLT – iShares 20+ year Treasury Bond Fund
Long
Trigger = above 85.60 (above yesterday’s high)
Target = 87.30 (38.2% Fibonacci retracement from the June high to August low)
Stop = 84.80 (below the breakout level)
Notes = TLT broke out yesterday and closed above its 50-day moving average for the first time since June 25. This positions it for a rally up to its first major Fibonacci retracement level around 87.30. We will look to buy over yesterday’s high at 85.60.
RTH – Retail HOLDR
Short
Trigger = below 87.85 (below yesterday’s low)
Target = 86.00 (support of the 50-day MA)
Stop = 88.65 (above the 2-day high)
Notes = RTH broke below its 20-day MA on August 9, bounced back up to it, then began reversing to head lower again yesterday. We anticipate another test of the 50-day MA in this sector that has begun to show signs of weakness over the past several weeks.
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:
We were all cash yesterday, which enables us to be nimble 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