Commentary:

The major indices began yesterday on a negative note, but a wave of broad-based buying reversed the downward bias after the first hour of trading. Throughout the remainder of the day, the broad market trended higher, although the Nasdaq showed a bit of relative weakness to the S&P 500. Regardless, it was the first solid day of higher volume buying the market has seen since the new year began. The S&P 500 gained 1%, the Nasdaq Composite 0.9%, and the Dow Jones Industrial Average closed 0.7% higher. Total market volume in the NYSE came in 20% higher than the previous day, which is bullish. However, volume in the Nasdaq was only 4% higher.

In yesterday’s newsletter, we mentioned that the first point of major resistance in the S&P was the 50-day moving average, with the second point being at the 20-day MA. Yesterday’s gains pushed the index through the 50-day MA, but closed just shy of the 20-day MA. Going into today, that 20-day MA will be the key resistance level to watch, currently at the 1,197 area. The 20-day MA also converges with the 50% Fibonacci retracement from the January selloff, which will further act as resistance.

Unlike the S&P, the Nasdaq Composite remains below its 50-day moving average, although it is likely to test its resistance today at the 2,113 level. Yesterday’s bounce in the broad market may have been encouraging to the bulls, but we need to see more than one “accumulation day” before we would reverse our bias. If the major indices are able to rally back above their 20 and 50-day moving averages, odds are good we could retest the prior December highs. But, until then, we continue to view the short-term bounces as a low risk opportunity to initiate new short positions. You may also want to consider selling any long positions into the strength of a bounce.

With numerous important companies reporting earnings this week, it is a bit fruitless to analyze the short-term charts of the major indices, as they are likely to be directly impacted by the market’s reaction to corporate earnings reports. But, after some of the key companies have reported, we’ll take a look at the daily charts once again. For now, focus on the big picture of the weekly charts, which we anotated in yesterday’s newsletter.

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Today’s watch list:

There are no new plays for today, although we remain long SMH.

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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:

RTH short (from Jan. 7) –
short 96.72, covered 99.25, points = (2.53), net P/L = ($255)

Open Positions:

SMH long (from Jan. 14) –
bought 31.38, new stop 30.87, target 32.90, unrealized points = + 0.12, unrealized P/L = + $36

Notes:

Yesterday’s DIA short setup did not trade through its trigger price, but RTH short stopped out. We remain long SMH with a new stop (above).

Edited by Deron Wagner,
MTG Founder and
President