The broad market followed through on Tuesday’s bullish reversal, as each of the major indices closed higher and on higher volume. Yesterday’s intraday market action was a welcome change from the recent pattern of choppy, sideways trading because the Nasdaq opened nearly flat, then trended steadily higher throughout the day. The S&P and Dow both followed similar patterns, but exhibited relative weakness and lagged the Nasdaq throughout the day. Regardless, it was refreshing to simply have a trending day in the Nasdaq. The Nasdaq, fueled by strength in the Internet, Semiconductor, and Software sectors, closed 1.3% higher on volume that was 6% higher than the previous day. The S&P 500 Index gained 0.4%, while the Dow Jones Industrial Average moved 0.6% higher, on volume that was 1% higher.
Taking a closer look at the price to volume patterns of the Nasdaq during the past week, you will notice the relationship has been bullish. When the Nasdaq sold off on September 24 and 27, both of those losing days occurred on volume that was lighter than the previous day. Then, when the Nasdaq turned higher on September 28, volume increased over the previous day. The Nasdaq subsequently closed higher on September 29, again on higher volume. This means that the past two days have been bullish “accumulation days,” which typically represent institutional buying, while the two down days were not bearish “distribution days” because the Nasdaq closed lower, but on lighter volume. As we always point out, volume is the one of the best leading indicators at your disposal because volume never lies! When volume is higher on the up days, and lighter on the down days, this is what you need to see in order for an uptrend to be sustained.
The Nasdaq rallied and closed above the band of resistance between 1,880 to 1,885 that we discussed in yesterday’s newsletter. The closing price of 1,893 means that the prior resistance of 1,880 to 1,885 should now become the new support level as we enter today. If you took our advice and entered long positions, consider trailing your stops higher such that you will lock in profits if the Nasdaq Composite breaks down below the 1,880 level. The new resistance level for the Nasdaq will be the prior uptrend line from the low of August, which was violated on the September 22 selloff. Remember that prior support becomes the new resistance level once the support is broken, so the prior support of said trendline will be difficult for the Nasdaq to push through. The daily chart of the Nasdaq Composite below illustrates resistance of this trendline:
Resistance on the S&P 500 remains the same, which is the convergence of the 200 and 20-day moving averages, at the 1,118 area. Watch this area closely because the 200-day MA is always a powerful support or resistance level. If the S&P fails to break through the 200-day MA, it will likely hold the Nasdaq advance in check as well. But, if the S&P trades in sync with the Nasdaq, we could see more follow through to the upside today, especially considering the bullish price to volume relationship in the Nasdaq over the past week. As always, watch the Semiconductor Index ($SOX) because the Nasdaq usually follows its direction. Also, don’t forget about the Gold/Silver Mining Index ($XAU), which continues to act great since breaking out on its weekly chart.
Today’s watch list:
SMH – Semiconductor HOLDR
Trigger = above 30.25 (above yesterday’s close)
Target = 32.20 (resistance of the Sept. 21 high)
Stop = 29.40 (below yesterday’s low)
Notes = We made a large profit the last time we played the SMH long on the break of its prior downtrend. Now it has corrected, pulled back to support, and appears ready to make another move to the upside.
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, new stop 34.10, target 35.60, unrealized points = + 0.46, unrealized P/L = + $92
Note the new stop on SWH above.
Edited by Deron Wagner,
MTG Founder and