The major indices spent the entire day consolidating in a narrow range, near the previous day’s highs, and closed the session with a mixed performance. The Nasdaq Composite closed with a gain of 0.6% and the S&P 500 Index closed 0.2% higher, but the Dow Jones Industrial Average closed with a 0.1% loss. Volume in both the NYSE and Nasdaq declined by 10% versus the previous day, but breadth was positive. Although the broad market closed relatively flat, many of Tuesday’s leading sectors and individual stocks followed through with a second consecutive day of gains, which is bullish.
Overall, yesterday’s market performance was exactly as you would expect on the day following a strong uptrending day. It’s rare to have two consecutive trending days in the broad market because a much more common scenario is to have a correction by time on the second day. A correction by time occurs when the major indices consolidate near the highs of the previous day’s range. This allows the intraday moving averages to rise up and meet the prices of the indices. Conversely, a correction by price would have occurred if sellers stepped in yesterday and caused the broad market to close lower. However, we did not see any selling into the strength of Tuesday’s rally, which means yesterday’s sideways trading action at the previous day’s highs was bullish. While a decline in total market volume is generally negative on an uptrending day, it is fine to have lighter volume on a consolidation day because it simply means the bulls were taking a rest. When you have a strong uptrending day followed by a consolidation day near the highs, the next day will often resume the direction of the trend from the prior two days. As such, we feel there are pretty good odds today will be a sideways to higher day.
Although the technical pattern of the broad market is bullish during the past two days, the one problem the market may have today is that the S&P 500 Index has rallied into resistance of its 50-day moving average. The chart below illustrates this:
Similarly, the Nasdaq Composite is testing its 50-day MA resistance, but actually closed just above it yesterday. Since the Nasdaq usually leads the rest of the broad market, this could pull the S&P along with it IF the Nasdaq is able to hold above the 50-day MA:
If the market happens to show weakness today, remember to use Fibonacci to predict support at various retracement levels. The major indices could easily retrace 38.2% (first level fibo) of Tuesday’s gains and still be bullish. In fact, a retracement such as this would provide us with lower risk entry points on the long side.
Note that the U.S. equities markets will be closed on Monday, May 31, for the Memorial Day holiday. The Wagner Daily will not be published on Monday, but regular publication will resume on Tuesday, June 1.
Today’s watch list:
DIA – Dow Jones Industrial Average
Trigger = above 101.55 (above the 2-day high)
Target = 102.70 (50-day MA resistance)
Stop = 100.80 (below yesterday’s low)
Notes = Since DIA is gapping up in the pre-market, remember to use the MTG Opening Gap Rules before buying the open. This means we will only buy DIA if/when it breaks above the highs of its first 20 minutes.
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 during the consolidation.
Edited by Deron Wagner,
MTG Founder and