Not surprisingly, the major indices spent most of the day in a choppy and narrow sideways range until a wave of late day buying pushed the broad market to close slightly higher. The S&P 500, Dow Jones, and Nasdaq Composite each closed approximately 0.5% higher as a follow-through to the previous day’s gains. However, volume declined approximately 7% in both the NYSE and Nasdaq. While it would have been more encouraging to see volume increase on a day when the market closed higher, it was positive that the major indices were able to retain their recent gains and did not sell off on higher volume.
If you look at yesterday’s Wagner Daily, you will see that we illustrated key resistance levels that both the S&P and Nasdaq were rallying into. On the Nasdaq, there was the primary downtrend line from the January 26 high, while the S&P had rallied into resistance of both its 20-day MA and the prior highs from two weeks ago. Since the major indices spent most of yesterday in a narrow and flat range and only closed slightly higher, those same resistance levels we discussed remain intact going into today. Like yesterday, we feel the odds of another up day are minimal and your risk probably favors the short side again, due to the resistance levels we have discussed. An extra ounce of caution is warranted on the long side of the market.
Interestingly, the Nasdaq Composite closed exactly at a price of 2,000 yesterday, which is likely to act as a big “psychological” resistance level because large whole numbers always do so. If the Nasdaq is not able to hold above the 2,000 level after the first 30 minutes of trading today, odds are good we will see selling pressure, which will also affect the S&P and Dow as well.
Today is the last day of the first quarter of 2004. This means we are likely to see some “window dressing” today, which occurs when mutual funds buy the leading stocks of the quarter in order to give the impression that their fund had a position and profited from the entire quarter. While the practice is deceptive, it is legal and occurs regularly at the end of every quarter. We mention this to make you aware that certain leading and lagging stocks often exhibit erratic price behavior on the last day of each quarter, so be aware of this if trading any individual stocks today.
Today’s watch list:
SPY – SPYDERS (S&P 500 Index Tracking Stock)
Trigger = 10 cents below the low of the first 20 minutes
Target = 111.00 (50% retracement of recent rally)
Stop = 10 cents over high of first 20 minutes
Notes = Rather than using a concrete trigger price for short entry, we will look to short SPY only if it breaks below its low of the first 20 minutes. If the low of the first 20 minutes is not violated, we will not short SPY. If, however, SPY breaks to a new low after 20 minutes, we will short and use a stop that is 10 cents over the high of first 20 minutes. Using this type of trade entry provides us with the maximum profit potential with minimal risk because a break below the 20-minute low is likely to set a downtrend in motion.
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.
We were flat yesterday and remain in cash.
Founder and President