The Nasdaq Composite sold off more than 1% last Friday morning, but a wave of buying during the final thirty minutes of the day reduced the Nasdaq’s loss to 0.6%. The late day recovery also enabled the Nasdaq to snap its three-week losing streak by gaining 0.1% for the week. The S&P 500 and Dow Jones Industrials followed a similar intraday pattern last Friday and lost 0.3% and 0.4% respectively. Both indices gained 0.3% for the week.
Total market volume in the Nasdaq declined by 2% last Friday, preventing the Nasdaq from registering another bearish “distribution day.” Volume in the NYSE, however, rose by 3% and caused the S&P to sustain its fifth day of institutional distribution within the past four weeks. Although last Friday was not a “distribution day” for the Nasdaq, the index nevertheless has had six such days within the past four weeks. During the same period, both the Nasdaq and NYSE have had only one “accumulation day,” which is defined as an “up” day that occurs on higher volume than the previous day.
Going into today, many traders will be focused on resistance of the daily downtrend lines we discussed last week. On their first attempt to break out, the major indices ran into resistance of their respective downtrend lines and promptly headed lower. However, Friday’s afternoon strength, combined with this morning’s pre-market gap up, may cause the broad market to rally above its downtrend lines that began with the highs of January 3. Below, we have drawn the downtrend lines on daily charts of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average. We recommend you make note of the pivotal levels of the downtrend lines:
If the major indices are able to rally and hold above resistance of their respective downtrend lines, watch for overhead resistance of the 20 and 50-day moving averages as well. On the charts above, the beige colored line is the 20-day MA and the light blue line is the 50-day MA. In the case of the S&P 500, the 20-day MA continues to converge with the downtrend line.
Because of Friday’s late afternoon reversal, combined with the close proximity of the daily downtrend lines, you may want to wait a few days before aggressively initiating new short positions. It’s unlikely the major indices recover dramatically because there remains a lot of overhead supply. However, it would not be surprising to see a decent bounce, perhaps up to the 50-day moving averages. As always, keep a close eye on volume to determine the legitimacy of any rally attempt. Without a corresponding increase in total volume, any rally attempt is likely to be short-lived.
Today’s watch list:
There are no new plays for today.
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.
DIA short (from Jan. 20) –
shorted 104.95, stop 105.90, target 101.49, unrealized points = + 0.51, unrealized P/L = + $102
SPY short (HALF position, from Jan. 21) –
shorted 117.35, stop 118.35, target 115.35, unrealized points = (0.08), unrealized P/L = ($8)
IWM short (from Jan. 28) –
shorted 122.20, stop 114.20, target 125.10, unrealized points = (0.60), unrealized P/L = ($60)
IWM short triggered last Friday and we still remain short DIA and half position of SPY.
Edited by Deron Wagner,
MTG Founder and