Yesterday was rather uneventful, as the major indices closed with a mixed performance on a day of lighter volume. The Nasdaq Composite, which had its sixth distribution day in five weeks on the previous day, closed 0.3% lower yesterday. However, volume was 3% lighter than the previous day, which indicated that institutions were not heavily selling. The Nasdaq was down as much as 0.9% in the morning, but recovered to close with only a small loss in the afternoon. The S&P 500 Index showed slight relative strength and closed with a gain of 0.2%, but on volume that was 10% lighter than the previous day. The Dow Jones Industrial Average closed flat yesterday, which was not surprising given the divergence between the S&P and Nasdaq. Within the past five weeks, the broad market has simply refused to close with decent gains on higher volume than the previous day.
From a technical point of view, not much happened yesterday. The relatively narrow trading ranges that occurred on a day of lighter volume left most of the indices technically unchanged. However, one notable event was the Dow’s bounce off support of the 50-day moving average. We mentioned the Dow’s proximity to its 50-day moving average in yesterday’s newsletter, and the index tested support of its 50-day MA several hours later. Furthermore, the Dow has been forming a bearish “ascending head and shoulders” pattern on its daily chart, which we have annotated on the daily chart of DIA (Dow Jones Indu. Avg.) below:
As you can see, the Dow (and DIA) is now trapped between support of its 50-day MA and resistance of its 20-day MA overhead. If the head and shoulders pattern follows through to the downside, the Dow will break below its 50-day MA within the next few days. However, a reversal and break above the March 1 high would be equally bullish. The Dow (and DIA) has been trading above the closely-watched 50-day moving average for the past four months, so watch that level closely in the coming days. A break below that level could certainly indicate a change of sentiment in that index.
On the S&P 500 Index, continue to keep a close eye on the 1,160 level (nine points above yesterday’s close) as overhead resistance. The S&P attempted to break that level on numerous occasions last month, but was unable to do so. As you may recall, the 1,160 level equates to a 50% retracement from the March 2000 high down to the October 2002 low. Therefore, that level is likely to continue acting as serious resistance unless volume suddenly increases on the upside. The daily chart of the S&P 500 Index below illustrates this “line in the sand” at 1,160:
As for the Nasdaq Composite, keep an eye on the primary downtrend line from the Jan. 26 high. We illustrated how the upper channel of that downtrend line perfectly stopped the rally and caused the Nasdaq to reverse on March 2. Therefore, this trendline remains intact unless the Nasdaq proves otherwise. The trendline converges with the Nasdaq just above the 50-day MA, which is at 2,057. If the Nasdaq gets above 2,060, all bets are off regarding further downside movement in the short-term. Support remains at the 1,990 – 2,000 level, which was the low of last week.
Today’s watch list:
DIA – DIAMONDS (Dow Jones Indu. Avg. Index Tracking Stock)
Trigger = below 105.51
(below the 50-day MA)
Target = 103.80 (Jan. 13 low)
Stop = 106.29 (above yesterday’s high)
Notes = This setup did not trigger yesterday, but we are watching it again today for possible entry. See commentary in last paragraph above for explanation of trade setup.
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 (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.
IWM short (HALF position, from March 2) –
shorted 117.96, covered 116.98, points = + 0.98, net P/L = + $48
ONEQ short (from March 2) –
shorted 81.66, stop 82.60, target 79.50, unrealized points = + 0.43, unrealized P/L = + $86
IWM short (HALF position, from March 2) –
shorted 117.96, stop 119.10, target 115.05, unrealized points = + 0.23, unrealized P/L = + $12
Per intraday e-mail alert, we covered half of the IWM short position to lock in gains yesterday, but remain short the second half of the position. We also remain short the full position of ONEQ. The DIA short setup did not hit its trigger price yesterday, but we are watching for possible entry today.
Founder and President