Commentary:
The major indices followed through on Monday’s reversal attempt and closed higher yesterday, but volume once again failed to increase. A bounce in the Semiconductor Index ($SOX) enabled the Nasdaq to recover 1.0% of last week’s losses. Both the S&P 500 and Dow Jones Industrials gained 0.6%. Total market volume in the NYSE declined by 3%, while volume in the Nasdaq came in 1% lighter than the previous day. Although the broad market has closed higher for the past two sessions, volume also declined on both days.
Yesterday’s gains caused the S&P 500 to close right below resistance of its 200-day moving average. The Nasdaq and Dow, however, are still well below their 200-day MAs. Given that all of last week’s losses occurred on higher volume and the gains of the past two days occurred on lighter volume, the rally into the 200-day MA may now present us with a low-risk entry point to short SPY (S&P 500 Index Tracking Stock). The daily chart of the S&P below illustrates the close at resistance of the 200-day MA:
In addition to resistance of the 200-day MA, the S&P weekly chart also shows resistance of the prior lows from 2005 and the prior highs from early 2004, which the index fell below last week. Even if the S&P manages to rally back above the 200-day MA at 1,153, it will still need to contend with the new resistance of that level at 1,163. The red horizontal line on the weekly chart of the S&P below illustrates this major level of resistance:
After the close yesterday, Intel announced better than expected earnings results and also raised their future earnings guidance. After the announcement, many stocks within the Semiconductor Index began trading higher in the after-hours session. If that momentum carries through into today’s session, we could see some bullish action in the Nasdaq, but we strongly recommend using the MTG Opening Gap Rules before initiating new long positions. If the opening gaps fail to hold after the first 20 minutes, odds are good that institutions are selling into the strength and you don’t want to be long. The Gap Rules keep you out of trouble when deciding whether or not to buy a stock or ETF that has gapped up on the open. Based on the pre-market futures action, the Nasdaq is poised for a stronger open than the S&P. Therefore, you may want to restrict short positions to the S&P and Dow as opposed to the Nasdaq.
Today’s watch list:
SPY – S&P 500 Index Tracking Stock
Short
Trigger = 13 cents below the low of first 20 minutes
Target = 109.20 (just above prior low of October 2004)
Stop = 117.45 (above 61.8% Fibo retracement of last move down)
Notes = We will only short SPY if it trades at least 13 cents below its low of the first 20 minutes. If the 20-minute low is never violated, the short setup will not trigger 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.
Closed Positions:
-
(none)
Open Positions:
-
PPH long (from April 7) –
bought 72.80, stop 72.90, target 77.60, unrealized points = + 2.21, unrealized P/L = + $221
Notes:
No changes to open positions.
Edited by Deron Wagner,
MTG Founder and
President