Commentary:
The Nasdaq Composite Index gained a solid 1.3% last Friday, which followed Thursday’s 1.0% increase. Like the previous day, both the S&P 500 and Dow Jones Industrial Average failed to keep pace with the Nasdaq, and respectively closed 0.5% and 0.2% higher. The Semiconductor Index ($SOX) surged another 3.4% on Friday, bringing its two-day gain to a whopping 8.7%! Our long entry in SMH (Semiconductor HOLDR) closed with nearly a 1-point unrealized gain and should push higher over the next week. Despite the 3.4% gain in SMH, however, DIA (Dow Jones Tracking Stock) only increased 0.2%. This worked out well because we remain simultaneously long SMH and short DIA (see the Sept. 9 newsletter for complete analysis). Volume in the Nasdaq declined 3%, while volume in the NYSE was 7% lighter than the previous day.
The Nasdaq Composite closed at its highest point since the rally began on August 13, and also above the consolidation that formed during the month of September. It’s also bullish that the Nasdaq closed well above resistance of its 50-day moving average, for the first time since July 2. However, the index also closed right at resistance from its prior high of July 30. The daily chart of the Nasdaq Composite illustrates the resistance from the prior high:
Because of the Nasdaq’s decent gain over the past two days, odds are good that it may consolidate or pull back modestly during today’s session. But, as long as the retracement is minor, we still anticipate the Nasdaq will rally above its July 30 high and make a move up to resistance of its weekly downtrend line. As you may recall from last Thursday’s newsletter, this is around the 2,000 level. Obviously, a strong continuation in the Semiconductor Index will be necessary in order to push the Nasdaq higher.
The S&P 500 Index, which rallied above its 200-day moving average on September 2, bounced off new support of its 200-day MA for the third time since the breakout. Major resistance on the S&P remains at 1,133 area, which is the downtrend line from the 2004 high, which was set in February. Take a look:
As pointed out in the September 9 newsletter, the Dow continues to have trouble with resistance of its weekly downtrend line, which is where it closed last week:
Going into this week, we continue to feel there will be divergence between the major indices. The Nasdaq, fueled by sudden interest in the Semis, is likely to rally at least to its weekly downtrend line. The Dow, conversely, has already done so and is now exhibiting signs of weakness. When this type of divergence occurs, we usually see sector rotation, as money managers shift from the “overbought” sectors to the “oversold” ones. In this case, that would mean money flowing out of the Dow blue chips and into the Nasdaq, specifically the tech sectors.
Today’s watch list:
There are no new plays for today, although we remain long SMH and short DIA from last week.
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.
Closed Positions:
-
(none)
Open Positions:
-
SMH long (from Sept. 10) –
bought 29.56, new stop 29.05, target 31.55, unrealized points = + 0.80, unrealized P/L = + $240
DIA short (from Sept. 9) –
shorted 103.01, stop 104.08, target 100.95, unrealized points = (0.22), unrealized P/L = ($44)
Notes:
The SMH long entry triggered, so we are now long SMH and short DIA.
Edited by Deron Wagner,
MTG Founder and
President