Commentary:
The broad market spent the first half of yesterday morning on a weak note, consolidating just below the previous day’s lows, but buyers stepped in at mid-day and pushed the major indices into the green. The Nasdaq gained 0.7% yesterday, which equated to just less than half of the previous day’s 1.6% loss. Similarly, the S&P 500 recovered 0.6% of the prior day’s loss, but the Dow Jones Industrial Average only moved 0.3% higher. Total market volume in the NYSE came in 9% lighter than the previous day, while volume in the Nasdaq dropped by 5%. Given the previous day of distribution, yesterday’s gains in the major indices were encouraging for the bulls, but the fact they occurred on lighter volume was not.
Yesterday’s bounce in the broad market caused the S&P 500 Index to rally into resistance of its hourly downtrend line, which began forming with the high of November 17. Though the index is still above all its primary moving averages on the daily chart, it remains below the 40-period MA on the hourly chart, and also closed right at its downtrend line. Take a look:
As the chart above indicates, this is the level where the S&P will begin heading lower again IF the hourly downtrend line remains intact. The Dow Jones Industrial Average also rallied into resistance on its hourly chart yesterday, but the bounce was more feeble because the index is still well below its hourly downtrend line. Both the 20 and 40-period moving averages also loom overhead on the hourly chart of the Dow, as you can see below:
The hourly chart of the Nasdaq Composite looks similar to the Dow:
Obviously, the uptrends of the daily and weekly charts is more significant than the downtrends on hourly charts, but remember that an hourly chart shows what is occurring on a shorter-time frame. As we mentioned yesterday, the longer term charts cause us to remain bullish on the intermediate-term trend of the major indices, but the hourly and daily charts are starting to show a possible short-term correction. Monday’s “distribution day” and yesterday’s rally on lighter volume are also confirming a short-term bearish price to volume relationship. We therefore view yesterday’s bounce as a low-risk opportunity to sell short the broad-based ETFs such as SPY, DIA, or QQQ, but only for a short-term trade of a few days. However, all bets are off if the major indices rally and hold above yesterday’s highs, as that would cause a break of the hourly downtrend line on the S&P. But, if that does not happen, it’s likely that each of the major indices will correct down to support of their respective 20-day moving averages.
Remember that the stock markets are closed for Thanksgiving holiday this Thursday, November 25. The markets will also close early, at 1:00 pm EST, on November 26. Because traders often close up shop a day or two early, it is common to see a decline in trading volume in the days preceding a major holiday. Therefore, be careful with aggressively entering new positions for the remainder of the week. Lighter volume often causes the broad market to make some erratic moves that can shake you out of positions on both sides of the market.
Today’s watch list:
DIA – Dow Jones Indu. Avg. Index Tracking Stock (DIAMONDS)
Short
Trigger = below 104.65 (below yesterday’s close)
Target = 102.45 (support of the 200-day MA)
Stop = 105.75 (above the hourly downtrend line)
Notes = As noted above, we are anticipating a short-term correction in the Dow, at least down to its 200-day MA. This is the weakest of the major indices because it is the only one that has not rallied above its prior highs from 2004.
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:
-
IWM short (from Nov. 18) –
shorted 123.35, stop 124.45, target 120.10, unrealized points = (0.55), unrealized P/L = ($55)
Notes:
The UTH short setup from yesterday did not hit its trigger price for entry.
Edited by Deron Wagner,
MTG Founder and
President