Not surprisingly, the major indices each closed lower yesterday, as resistance of both the 200-day moving average and the prior highs from July prevented the S&P 500 Index from going higher. The S&P 500 Index and Dow Jones Industrial Average lost 0.9% and 0.7% respectively, while the Nasdaq Composite retraced 1.4%. But, given the significant gains the broad market has seen since the current rally began on August 13, yesterday’s losses were relatively minor. More importantly, volume in both the NYSE and Nasdaq remained nearly the same as the previous day’s levels, which were the lowest of the year and well below average. Just as we did not place much validity in the percentage gains of the previous low-volume day, we also cannot read too much into a down day that occurs on equally light volume. Unfortunately, it will be difficult to have an accurate representation of the market’s true strength or weakness right now until we begin to see the return of the institutional traders, who most likely relaxing in the Hamptons.
Going into today, keep an eye on the support levels we discussed in yesterday’s newsletter. On the S&P 500 Index, we expect to find support at the 1087 – 1090 area, which correlates to the 20-day moving average and also the 50% Fibonacci retracement from the recent rally. Resistance on the S&P has now been firmly established at last Friday’s high of 1,109, which is also the prior high from July and is only a point below the 200-day moving average. Like the S&P, the Nasdaq Composite should also find support at its 20-day moving average, which is around 1,817. Last Friday’s high of 1,866 is the key resistance level to watch.
With market volume coming in at the lowest levels of the year during the past two days, we really see no point in entering new ETF trades during the next several days. In market doldrums, cash is king! As you probably already know, it is often difficult to swing trade stocks or ETFs over a period of several days when volume is very light in the markets. In low volume environments, the trend of the broad market can reverse quickly and easily because as few as one or two large institutions can reverse the direction of the current trend. Conversely, one or two institutions that decide to sell their long positions would have a relatively minor effect on a market that is rallying on higher than average volume because there would be enough demand to absorb the supply. Similarly, a market that is selling off on high volume will have difficulty rallying even if a few big players decide to buy. This is why we constantly pay so much attention to volume. Assessing the broad market’s volume on a continual basis is like looking underneath the hood in order to see what is really happening beneath the surface.
Today’s watch list:
There are no new trades for today, as volume is too light to give us any clear, confirmed signals. We will probably maintain a light stance with new positions until after the Labor Day holiday, which is when we expect volume to return.
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.
SMH long (from Aug. 25) –
bought 30.16, sold 29.69, points = (0.47), net P/L = ($141)
SMH hit our stop, which we raised to 29.70 yesterday morning. We are now flat the ETFs.
Edited by Deron Wagner,
MTG Founder and