The new week began with the Nasdaq Composite assuming leadership and playing “catch up” to last week’s breakouts in both the S&P and Dow. Strength in the semiconductor and other tech sectors enabled the Nasdaq Composite to rally 0.9% yesterday, while the S&P 500 lagged behind with a 0.3% gain. The Dow Jones Industrials closed flat, which was not surprising given last Friday’s large gain. As predicted in yesterday’s newsletter, the rally in the Nasdaq pushed the index back above its 50-day moving average for the first time since January 4. The Semiconductor Index ($SOX) also closed back above its 200-week moving average.
A 7% increase in the Nasdaq’s total market volume helped to confirm yesterday’s rally. Advancing volume in the Nasdaq also outpaced declining volume by a margin of more than 3 to 1, which was also bullish. Total volume in the NYSE declined by 9%, but that was not a big deal because yesterday was essentially a consolidation day for both the S&P and Dow. Note that volume during last Friday’s breakout to new multi-year highs occurred on slightly higher volume. Even with yesterday’s decrease in volume, internals remained bullish in the NYSE.
Taking an updated look at the $SOX index, you will notice that yesterday’s rally put it back above the 200-week moving average. Since March of 2002, the $SOX has remained below resistance of its 200-week moving average. Two weeks ago, the index closed the week just above the 200-week MA, but it retraced modestly and closed last week below it. The ability of the $SOX to quickly reclaim the 200-week MA is quite bullish, especially if it closes the current week above it. Based on the way the $SOX is acting, it seems the 200-week MA will soon become the new area of major support, rather than multi-year resistance. Confirmation of a breakout in the $SOX would occur if the index closes the week above last week’s intra-week high, which is at the 449 level. Beyond that, a close above the December 2004 high of 453 would really confirm a primary long-term trend reversal in the $SOX. We have circled resistance of the prior highs on the weekly chart of the $SOX below. Watch these levels closely in the coming days:
The most significant thing about yesterday’s session was that the Nasdaq Composite closed above resistance of its 50-day moving average for the first time since January 4. The 50-day MA is a level that is closely watched by professional traders, as many institutions decrease their holdings on the long side of the market when an index is below the 50-day MA. Therefore, the Nasdaq’s close above the 50-day MA should generate substantial buying interest, both as traders enter new positions and cover shorts within the Nasdaq. However, as the chart below illustrates, there is still a lot of congestion the index needs to contend with. Specifically, keep a close eye on the prior closing high of 2106. This may be a difficult area for the index to rally above, but its ability to do so would be rather bullish:
After the close yesterday, Texas Instruments (TXN) announced they were expecting to slightly miss their original revenue guidance for the quarter. Because TXN is a key player in the Semiconductor arena, many semis reacted in sympathy and dropped lower in the after-hours market. However, as of the time of this writing, the Nasdaq pre-market futures have recovered and are only poised to open one or two points lower. If the market maintains this bias into the open, it’s quite possible the market may blow off the TXN news and exhibit bullish behavior. Such is often the case when sentiment in a particular sector changes. Regardless, remember to keep your stops in place and trade what you see, not what you think!
Today’s watch list:
There are no new plays for today, although we are now long QQQQ, which triggered per yesterday’s newsletter. We also remain long 1/2 position SMH and full position of PPH.
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.
SMH long (HALF position, from Feb. 7) –
bought 32.55, stop 33.20, no target (trailing a stop), unrealized points = + 2.08, unrealized P/L = + $312
PPH long (from Feb. 22) –
bought 72.19, stop 71.85, target 76.75, unrealized points = + 1.29, unrealized P/L = + $129
QQQQ long (from March 7) –
bought 38.07, stop 37.25, target 39.95, unrealized points = (0.01), unrealized P/L = ($1)
Per yesterday’s newsletter, we are now long QQQQ.
Edited by Deron Wagner,
MTG Founder and