Commentary:
For the first time since April of 2004, the Nasdaq Composite Index closed higher, and on above average volume, for three consecutive days. The Nasdaq closed 0.8% higher yesterday, and on volume that was 9% higher than the previous day. Like the prior two days, the Dow barely moved, while the S&P 500 Index was stronger than the Dow, but weaker than the Nasdaq. Although the Nasdaq held relatively firm, a late afternoon selloff caused the Dow to close flat and the S&P 500 to close only 0.2% higher. Volume in the NYSE increased by 3%, and has come in above its 50-day average level in two of the past three days. Not surprisingly, volume has been steadily returning to the markets since the passing of Labor Day. This institutional buying has enabled the strong gains in the Nasdaq and the $SOX index during the past three sessions.
Yesterday’s 2.5% gain in the Semiconductor Index ($SOX) brought the three-day gain in the index to an impressive 10%! As we anticipated, the index rallied quickly up to resistance of its 50-day moving average after it pushed through resistance of its 20-day MA on September 10. As you know, we bought SMH (Semiconductor HOLDR) on September 10, but quickly sold half the position when it rallied to within a few pennies of our initial 31.50 price target yesterday afternoon. The daily chart of SMH below illustrates how it rallied to our price target, which was resistance of the 50-day moving average, but then corrected upon doing so:
Although we sold half the SMH position for nearly a 2-point gain yesterday, we remain long the second half of the position because we anticipate further upside in the $SOX. With SMH, the key is for it to rally and hold above the August 23 high of 30.99, which would represent the first “higher high” since the prior daily downtrend was broken a few days ago. If that occurs, SMH should rally up to its next prior high of 33.21, which was set on August 2 (marked by the horizontal line on the chart above). As always, we will continue trailing the SMH stop higher in order to protect our profit in the remaining position size.
The Nasdaq Composite closed above resistance of its prior high yesterday, which should now act as the new support level. The daily chart below illustrates this:
Although not illustrated on the chart above, remember that resistance of the weekly downtrend line on the Nasdaq is still around the 2,000 level. Until the index rallies to that level, we remain on the bullish side of the Nasdaq. The Dow Jones, however, has gone nowhere during the past three days, despite a 3% gain in the Nasdaq. This is because the Dow continues to contend with resistance of its weekly downtrend line, which it rallied into last week. For this reason, we remain short DIA (Dow Jones Tracking Stock), in addition to remaining long SMH (half position now).
Today’s watch list:
There are no new plays for today, although we remain long SMH (half position) 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:
-
SMH long (HALF position, from Sept. 10) –
bought 29.56, sold 31.36, points = + 1.80, net P/L = + $265
Open Positions:
-
SMH long (HALF position, from Sept. 10) –
bought 29.56, new stop 29.56, new target 32.95, unrealized points = + 1.35, unrealized P/L = + $197
DIA short (from Sept. 9) –
shorted 103.01, stop 104.08, target 100.95, unrealized points = (0.49), unrealized P/L = ($98)
Notes:
Per intraday e-mail alert, we sold half of our SMH position into strength yesterday, but remain long the second half of the position. Note both the tighter stop and higher price target on the remaining shares. We also remain short DIA with the same stop.
Edited by Deron Wagner,
MTG Founder and
President