Though the broad market began yesterday on a positive note, the major indices lost their strength in the afternoon and closed with mixed performances. Within the first hour of trading, the S&P 500 Index had rallied above the previous day’s high and was showing a 1% gain. However, the Nasdaq Composite Index showed relative weakness and was unable to rally above its high of the previous day. This divergence between the two indices eventually acted as an anchor on the S&P 500 and caused the index to lose its early gains due to an afternoon sell-off. The S&P 500 and Dow Jones Industrials closed with 0.2% and 0.3% gains respectively, but the Nasdaq Composite closed with a small loss of 0.2%. Total market volume was 12% higher in the NYSE and 14% higher than the previous day in the Nasdaq. Given the 12% increase in volume, a fractional 0.2% gain in the S&P is not exactly what the bulls want to see. The higher volume in the Nasdaq, along with the lower closing price, means that yesterday met the technical definition of a bearish “distribution day,” although the actual loss was minimal.
For the second consecutive day, the S&P 500 Index rallied above resistance of its daily downtrend line on an intraday basis, but failed to close above it. The downtrend that began with the high of March 5 is certainly acting as very solid price resistance, just as it did in the beginning of April. While this trendline resistance remains just overhead of yesterday’s closing price of 1,138, support of both the 20 and 50-day moving averages lies just below. This combination of key moving average support below and trendline resistance above has been the culprit of the erratic and indecisive trading action we have seen over the past several days. While the bulls are betting the S&P will find support above its 50-day MA and break higher out of consolidation, the bears are simultaneously betting the primary downtrend line will send the index back down again. The daily chart of the S&P 500 Index below illustrates how the primary downtrend line once again acted as resistance yesterday, but support of the 20 and 50-day moving averages remains just below:
Because of this tug-of-war between the bulls and bears, the S&P 500 is likely to remain quite choppy until the index either closes above its daily downtrend line or breaks back below support of its 50-day moving average. Until either of these scenarios occur, consider staying away from both long and short trades in SPY. The resistance of the downtrend line is around the 1,143 area, while support of the 20 and 50-day moving averages is at 1,135 and 1,132 respectively. A break below the 50-day MA at 1,132 would also set a new low of the week, as Monday’s low is converging with the 50-day MA. Keep an eye on those three pivotal support/resistance numbers in the S&P 500 today: 1,143, 1,135, and 1,132.
Like the S&P, the Dow Jones Industrial Average rallied above its daily downtrend line intraday, but was not able to close above it. Resistance of this downtrend line is now around 10,500. The 20 and 50-day moving averages are just below at 10,434 and 10,420. Since the Dow closed yesterday at 10,478, it also remains stuck between pivotal support and resistance levels. Just as we recommended staying away from trading the S&P while in this range, you may also want to avoid trading DIA until we see either a confirmed break above resistance or below support. The daily chart of the Dow below illustrates the current support and resistance of this range:
The Nasdaq Composite Index showed relative weakness yesterday and did not even rally up to its daily downtrend line, as it did the previous day. Nevertheless, resistance of the downtrend line remains at the 2,060 area. Support of its 20-day moving average matches up with yesterday’s low, around the 2,028 area. A break below this level would probably cause the index to quickly drop to its 50-day MA, which is at 2,008.
As conveyed in the commentary above, we feel it is very dangerous to be aggressively entering new positions on either side of the market right now. There are too many mixed signals that could cause the broad market to easily go in either direction. Because so many traders are on the sidelines, wondering which direction the next move will be, the intensity of the move is bound to be significant when it finally occurs. Therefore, we are maintaining a short-term neutral bias for now, and prefer to be largely in cash until we see a good reason not to be.
Today’s watch list:
There are several plays we are considering, but we are hesitant to list “official” trigger prices until we see which direction the broad market will resolve itself. Possible long positions we are considering: PPH (Pharmaceutical HOLDR), BBH (Biotech HOLDR), and OIH (Oil Service HOLDR). Possible short positions: SMH (Semiconductor HOLDR), XLF (iShares Financial Index). Rather than list specific trigger prices before the market opens, we will be watching these and other ETFs for possible entry today, depending on the broad market’s performance. As always, we will send an e-mail alert to subscribers when/if we enter any new positions today, so be on the lookout for those today.
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.
No new positions were entered yesterday, and we patiently remain flat.
Edited by Deron Wagner,
MTG Founder and