Yesterday’s intraday trading action was very similar to the previous day in that the major indices trended lower and showed weakness in the morning, but rallied during the afternoon and into the close. During the morning, SPY (S&P 500 ) and ONEQ (Nasdaq Composite) both sold off down to the middle of the previous day’s range, while DIA (Dow Jones Industrials) again showed relative weakness and actually probed below the previous day’s low. The major indices grinded slowly higher in the early afternoon, but the buying momentum again picked up during the final ninety minutes of trading, causing the major indices to close near their intraday highs. Interestingly, QQQ (Nasdaq 100 Index) once again bounced off its 200-period moving average on the 15 minute chart. This level has marked the intraday lows and acted as the reversal point in QQQ for the past two days. The 15-minute chart of QQQ below illustrates how the 200-MA has been acting as support:
As you can see from the chart above, the intraday trading action of the past two days has consisted of the bears taking control in the morning, but the bulls taking control in the afternoon. This confirms the indecision we have been talking about is still present in the broad market. In order to profit, intraday traders need to modify their trading plans so they are taking quicker profits and using tighter stops. It also makes a lot of sense to keep share size minimal. Swing trading has been even more difficult because the intraday reversals cause many swing trades (both long and short) to hit their stops too quickly. Anyway you slice it, the market currently requires you to be quite nimble and ready to close your positions in the blink of an eye. Unfortunately, this leaves little room for a margin of error in your trading operations.
Yesterday afternoon’s rally caused the Nasdaq Composite (ONEQ) to close at a new 52-week high yesterday, but both SPY and DIA did not follow suit. Relative strength was also found in the S&P Mid-Cap Index (MDY) and Russell 2000 Small Cap Index (IWM), both of which also closed at new 52-week highs. Below are two hourly charts, SPY and ONEQ, that illustrate the divergence that has caused ONEQ and the Nasdaq Composite to close at a new high, but not SPY and the S&P 500 Index:
Since the Nasdaq often leads the broad market, there is a good chance that the S&P and Dow will also follow through to new highs within the next several days as well. However, until the market proves otherwise, we have to assume that the recent pattern of indecisive intraday action will continue. It’s important to remain nimble and ready to switch your market bias at a moment’s notice. As long as you don’t fall in love with either side of the market right now, you will do fine to remain positioned in the general direction of the market, which is up. Just don’t get stuck on your logic of what the market “should or should not do” because the market does not care about your, or anyone else’s, opinions.
Today’s watch list:
BBH – Biotechnology HOLDR
Trigger = above 129.26 (above yesterday’s high and the 20-day MA)
Target = 131.80 (resistance of the 50-day MA)
Stop = 128.10 (below yesterday afternoon’s low)
Notes = The biotechs are beginning to show signs of life after consolidating in a holding pattern for the past several months. If BBH can break through its 20-day MA, we anticipate it will rally up to its next major resistance of the 50-day MA. However, since there is a pre-market gap in the futures, remember to use the MTG Opening Gap Rules, which basically states we will wait for a break of the high of the first 20 minutes if BBH gaps open above its trigger price of 129.26. Also remember that a full position of BBH is only 100 shares, based on the MTG Position Sizing Model, because it is quite volatile.
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.
- OIH long (half position from October 30th) –
bought 54.70, sold 55.26, points = + 0.56, net P/L = + $27
OIH hit the trailing stop yesterday, so we were cash overnight.
Edited by Deron Wagner,
MTG Founder and President