The broad market showed weakness during the first ninety minutes of yesterday’s session, but, as expected, the 50-day moving average in both the S&P 500 and Nasdaq Composite acted perfectly as support. This enabled each of the major indices to reverse their morning weakness and close with decent gains, near their intraday highs. Thanks to strength in the manufacturing and basic materials sectors, leadership was found in the Dow Jones Industrial Average, which closed 0.9% higher and back above the 10,000 mark. Both the S&P 500 and Nasdaq Composite bounced off their 50-day moving averages intraday and closed approximately 0.5% higher. Perhaps the best thing about yesterday’s action was that total market volume in the NYSE and Nasdaq was 10% and 17% respectively higher than the previous day’s levels. Because the broad market closed higher AND on higher volume, yesterday was technically a bullish “accumulation day.” After several days of institutional selling (aka “distribution”) within the past two weeks, yesterday’s “accumulation day” was necessary in order for the markets to sustain its upward bias in the short-term.
Hopefully you took our advice to enter positions in the Gold and Silver Mining Index ($XAU) because the index rallied sharply higher and broke out of its consolidation that we discussed in yesterday’s newsletter. The $XAU Index, which closed with a 3.1% gain, was also one of the leading sectors yesterday. The daily chart below illustrates yesterday’s breakout in the $XAU Index. The horizontal blue line represents the breakout point, while the sloping red line illustrates the primary uptrend:
The last time the $XAU closed near the 100 level was on April 13, more than five months ago. The next major resistance on the index is the prior high from April 1, which is at the 106 area. We plan on holding long positions in the index until it retests the April 1 high or our trailing stops are hit. The longer-term weekly chart of the $XAU below illustrates resistance of the prior high from April 1 (circled below):
In yesterday’s Wagner Daily, we explained that the 50-day moving averages in both the S&P and Nasdaq were likely to provide support during yesterday’s session, which is exactly what happened. On the daily charts below, notice how perfectly the 50-day moving average acted as support on both indices:
Going into today, we feel it is a safe bet to be positioned on the long side of the market as long as the 50-day moving averages are not violated. If the S&P and/or Nasdaq close below yesterday’s lows, all bets are off for long positions because it will mean that the indices failed to hold support of their 50-day MAs. But, the positive thing about being long at current levels is that the vicinity of the 50-day MAs make it easy to determine your exit point. If the 50-day MAs are broken, you take a small loss and close your positions. However, if support of the 50-day MAs remains intact, you will be positioned at a very good price that provides a positive risk/reward ratio to the upside.
As for short-term resistance, the same levels we discussed in yesterday’s newsletters will be in effect. For easy reference, here is a recap… The S&P will have resistance of the 200-day moving average, which has converged with the 20-MA, at the 1,117 area. On the Nasdaq Composite, the 20-day MA will act as resistance at the 1,881 area, which also converges with the lows of September 22 – 24 (1,880 to 1,885 area). As you can see, the Nasdaq remains well below resistance of its 200-day moving average, although we still feel the Nasdaq is more likely to test its resistance at 1,965 before going much lower.
Today’s watch list:
(No new trade setups for today, although we are long SWH per yesterday’s entry via e-mail alert.)
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.
SWH long (from Sept. 28) –
bought 34.14, stop 33.60, target 35.60, unrealized points = + 0.06, unrealized P/L = + $12
Per intraday e-mail alert, we bought SWH yesterday.
Edited by Deron Wagner,
MTG Founder and