The Nasdaq Composite closed with a decent gain of 1.1% yesterday, but volume once again failed to impress and came in flat versus the previous day. The S&P 500 Index also notched its second consecutive day of gains, but the index only gained 0.3% due to a very narrow intraday trading range. The Dow remained in a tight volatility contraction and closed flat for the second day in a row. Volume in the NYSE dropped 5% versus the previous day, maintaining the current bearish trend of lighter volume on the up days. Interestingly, yesterday’s volume in the NYSE was the lightest day of the year (excluding holiday-shortened sessions). As long-time subscribers know, such a light volume day would be positive if the broad market closed with losses yesterday, but it is the opposite of what you want to see on an up day.
Yesterday’s gain the Nasdaq Composite put the index at a critical “make or break” level going into today. The Nasdaq sold off on March 2, after running into resistance of its primary downtrend line from the high of January 26. However, it has reversed and rallied back up to that trendline only two days later. The daily chart of the Nasdaq Composite below illustrates this:
As you can see, overhead resistance of the 50-day moving average has perfectly converged with resistance of the primary downtrend line (circled above). Therefore, this convergence point around the 2,059 area will act as a pivotal support/resistance point in the Nasdaq today. If the Nasdaq is unable to convincingly close above the 2,060 area today, then the downtrend will probably resume and the index will head lower next week. Conversely, we could actually see a multi-day rally if the Nasdaq closes above that level today. Obviously, a break above this resistance should also be confirmed by higher volume, otherwise the breakout could not be trusted.
In addition to the 50-day MA on the Nasdaq, note that the 200-WEEK moving average is currently at 2,057, only two points above yesterday’s close. This 200-week MA has perfectly acted as resistance for the past five weeks, so a weekly close above that level today would be bullish. The weekly chart below illustrates how the 200-week MA has been pushing the Nasdaq lower for the past five weeks:
As for the S&P 500 Index, the 1,160 area remains the primary resistance level to watch, as annotated in yesterday’s newsletter. The Dow Jones remains sandwiched between support of the 50-day MA below and the 20-day MA above. Take a look:
The ascending head and shoulders pattern continues in the Dow, and we still expect a break of the 50-day MA. However, the longer the sideways volatility contraction continues in the Dow, the more likely the index will simply “correct by time” rather than price. If that occurs, we may not see a sharp break below the 50-day MA, as we did with the Nasdaq a few weeks ago. We remain prepared either way.
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 = Still targeting a short in DIA only if the Dow breaks below its 50-day MA, which it has not done so far.
EWJ – iShares Japan Fund ETF
Trigger = above 10.06
(breakout of consolidation)
Target = 10.90 (Fibonacci extrapolation)
Stop = 9.70 (below prior “swing low”)
Notes = Japan’s Nikkei index has been showing a lot of relative strength to the U.S. markets over the past week and close last evening at another 52-week high. The Nikkei’s performance has created a bullish consolidation on the weekly chart, and EWJ appears poised to make another leg higher if it can break past $10. Note that full position size of EWJ is 800 shares, based on the MTG Position Sizing Model. We trade larger position size of this one to compensate for low volatility. Also, remember to use the MTG Opening Gap Rulesiin the event of an opening gap above our trigger price. This means that if EWJ gaps open above its trigger price, we will only buy it it subsequently breaks its 20-minute high.
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.
ONEQ short (from March 2) –
shorted 81.66, stop 82.60, target 79.50, unrealized points = (0.26), unrealized P/L = ($52)
IWM short (HALF position, from March 2) –
shorted 117.96, new stop – 10 cents above 20-minute high, target 115.05, unrealized points = (1.26), unrealized P/L = ($63)
IWM approached our stop into the final five minutes of trading yesterday, so we made judgement call to take the position overnight and use the MTG Opening Gap Rules adjust the stop to just over the 20-minute high today. We also remain short only a half position of IWM and full position of ONEQ.
Founder and President