As you might expect after four consecutive days of losses, the broad market bounced yesterday and enabled each of the major indices to recoup a small degree of last week’s losses. The broad market gapped up at the open and rallied modestly in the morning, but total market volume was on the light side and prevented the rally from picking up steam. The major indices began to roll over and give back most of their gains in the late afternoon, but buyers returned during the last thirty minutes of trading and pushed the S&P 500 and Dow Jones Industrials up to their intraday highs, while the Nasdaq Composite lagged and closed in the middle of its intraday range. Both the S&P 500 Index and Dow Jones Industrial Average closed with gains of 0.9%, which enabled both indices to erase last Friday’s losses. The Nasdaq closed 1.0% higher, which equates to only half of last Friday’s loss.
Given last week’s pummeling, it was a welcome change to see a reprieve in the selling, even if short-lived. However, despite positive breadth, yesterday’s total market volume did not confirm institutional strength was behind the rally. Volume in the NYSE was 6% lower than the previous day, while volume in the Nasdaq was 8% lower. Volume surged in both the NYSE and Nasdaq during last week’s selloff, so it’s not surprising to see lighter volume on the first day of gains. Obviously, it is difficult for any market to sustain its gains if the volume on the up days is less than the volume on the down days. Therefore, bulls would need to see a follow-through day of broad market gains, AND on higher volume, sometime later this week in order to prevent the major indices from heading back down to their lows.
As anticipated, the Nasdaq Composite closed back above its 200-day moving average yesterday. In yesterday’s Wagner Daily, we mentioned that an index rarely breaks below a 200-day moving average without first attempting to bounce off the key support it provides. While the Nasdaq Composite closed last Friday below its 200-day MA, it immediately bounced and closed three points above it the next day. The chart below illustrates this:
Going into today, keep an eye on the 1118 to 1119 price levels in the S&P 500 Index. That price range, which represents the prior lows from April 21, has acted as resistance for the past two days. A high volume break above that range could enable the S&P to rally back up to its next resistance of the 50-day average at 1129. But, until that breakout happens, we have to assume this price range will continue to provide resistance. Short-term support in the S&P is around 1107 – 1108, which is the lows of the past two days. The hourly chart of the S&P 500 below illustrates the horizontal price resistance around 1118 and support near 1108:
In the Nasdaq Composite, expect to find resistance near yesterday’s high, at the 1950 – 1955 range. Short-term support is around 1934 (200-day MA) and yesterday’s low of 1926. For the Dow Jones Industrial Average, watch the 10320 to 10330 range to act as horizontal price resistance. Like the S&P, yesterday’s rally in the Dow stopped at the prior day’s high. Support in the Dow is at the 2-day low around 10225.
The main factor that is likely to determine short-term market direction over the next several days is the markets’ reaction to the FOMC meeting today. At 2:15 pm EST, the Feds will provide a decision on short-term interest rates. Just about everyone on the Street expects rates to remain unchanged, but the language and warnings of any upcoming changes to Monetary Policy will be closely observed by traders. Remember it is not what the Feds actually say that matters, but the market’s reaction that matters. Therefore, we recommend you sit mostly on the sidelines today and allow the market’s volatility to play out after the announcement. If you are not accustomed to trading on a Fed day, be warned that conditions are typically quite volatile and erratic after the 2:15 pm announcement.
Today’s watch list:
Due to the FOMC meeting today, there are no new trade setups. We would rather wait to see the market’s reaction to the Feds before entering new trade setups. We are, however, still short OIH and SPY.
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.
OIH short (HALF position, from April 30) –
shorted 70.41, covered 70.90, points = (0.49), net P/L = ($26)
SPY short (from May 3) –
shorted 112.15, stop 113.22, target 109.30, unrealized points = 0.00, unrealized P/L = $0
OIH short (re-entry, full position from May 3) –
shorted 70.95, new stop 72.05, target 67.20, unrealized points = (0.15), unrealized P/L = ($15)
We covered the remaining half position of OIH when it hit our trailing stop yesterday, but we re-shorted a full position of OIH later in the afternoon because we still like the trade setup. Per intraday e-mail alert, we also shorted SPY for swing trade yesterday. Details listed above.
Edited by Deron Wagner,
MTG Founder and