Commentary:

After pushing through its 50-day moving average for the first time in two months on Monday, the Nasdaq Composite just as quickly slipped back below it. The Nasdaq gained a solid 0.9% on Monday, but closed 0.8% lower yesterday. A profit warning from Texas Instruments on Monday evening caused the Semiconductor Index ($SOX) to similarly retrace nearly all of its prior day’s gain. The S&P 500 and Dow Jones Industrial Average fared better yesterday, losing only 0.5% and 0.2% respectively.

Total market volume in both exchanges showed a mixed picture yesterday. The one positive of the Nasdaq’s performance was that yesterday’s 0.8% loss occurred on volume that was 11% lower than the previous day. Given the prior day’s key breakout above the 50-day moving average, it would have been rather bearish if the Nasdaq sold off below it on higher volume yesterday. However, total market volume in the NYSE actually increased by 3% over the previous day, which made yesterday a bearish “distribution day” in the NYSE. Considering last Friday’s breakout to new multi-year highs in both the S&P and Dow, it’s not a very good sign to see a day of institutional selling only two days later. Another day or two of distribution over the next week would put last Friday’s breakout in danger of failing.

Going into today, keep a watchful eye on the 1214 area of the S&P, as it represents an important area of support the index must hold. Last Friday’s breakout above the 1214 level put the index at a new multi-year high, which means that same level should now act as the new horizontal price support. However, a solid break below that level could represent a failed breakout in the S&P, which would trap the bulls who bought the breakout. If this occurs, expect another wave of selling to hit the index shortly thereafter. The S&P closed only 5 points above that key support level yesterday, so the index could easily test that area of support today. The daily chart below illustrates this:

Just like the S&P, the Dow also needs to hold above its prior highs that it rallied and closed above last Friday. The chart below illustrates its corresponding support:

As you know, the $SOX has been showing a lot of indecision ever since it rallied into its 200-week MA two weeks ago. While the indecision can test one’s patience, the good news is that we are likely to see some type of resolution to the tug-of-war within the next few days. Intel reports quarterly earnings tomorrow after the close and its results are likely to determine the next major direction for the $SOX. But remember that it’s not the actual report that matters, but the market’s reaction that determines how we handle it. Because we have a low cost basis in SMH and have already sold half of the position near its highs, we are comfortable holding our partial long position in SMH through the Intel earnings. But, as always, only you can determine your personal comfort level with regard to risk. Because the market is showing such mixed signals right now, it’s more important than ever to trade what you see, not what you think!

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Today’s watch list:

There are no new plays for today, but we remain long 1/2 position SMH, full PPH, and full QQQQ.

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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:

(none)

Open Positions:

SMH long (HALF position, from Feb. 7) –
bought 32.55, stop 33.20, no target (trailing a stop), unrealized points = + 1.43, unrealized P/L = + $215

PPH long (from Feb. 22) –
bought 72.19, stop 71.85, target 76.75, unrealized points = + 0.76, unrealized P/L = + $76

QQQQ long (from March 7) –
bought 38.07, stop 37.25, target 39.95, unrealized points = (0.39), unrealized P/L = ($156)

Notes:

Per yesterday’s newsletter, we are now long QQQQ.

Edited by Deron Wagner,
MTG Founder and
President