After beginning the day with a small opening gap up, the broad market spent the duration of yesterday’s session oscillating in a relatively tight range throughout the day. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average each closed near their intraday highs and just above their respective highs of the previous day. The Nasdaq Composite gained 1.0%, the S&P advanced 0.9%, and the Dow closed 0.8% higher. Like the previous day, the major indices began to show weakness in the afternoon, but buyers stepped in and provided modest support during the final thirty minutes.
Total volume in the NYSE declined by 15% yesterday, while turnover in the Nasdaq was 19% lighter than the previous day. Of the past three sessions, two days have closed higher and one day has closed lower. However, volume has come in lighter than the previous day in each of the past three days. When volume drops below average levels, the broad market commonly shows indecision because there is a lack of commitment from both the bulls and bears. The roller-coaster ride in the major indices over the past several days can partially be attributed to the declining overall volume. It appears that institutions are backing away from the market right now, most likely until earnings season has passed. Because more than 75% of the broad market’s daily volume is the result of institutional activity, it’s not a good idea to aggressively enter new positions in a market that is showing declining volume.
The S&P 500 gained ten points yesterday, but it stopped one point shy of its major resistance at the 1,163 level, which we analyzed thoroughly in yesterday’s Wagner Daily. Clearly, this level is being closely watched by nearly every trader because of its significance to the intermediate-term trend of the broad market. While doing further analysis, we also noticed that the S&P also has resistance of its prior uptrend line just overhead as well.
Looking at the weekly chart of the S&P 500, you will see that the index broke below support of a 7-month uptrend line two weeks ago. As such, that prior uptrend line has now become the new resistance that will make it difficult for the S&P to rally back above. The ascending red line on the weekly chart below illustrates the prior support of the S&P’s uptrend line, which has now become new resistance:
As for the Nasdaq and the Dow, remember that both indices are showing major resistance at their 200-day MAs because that is also the convergence points for their respective daily downtrend lines. We feel that a rally into their 200-day moving averages would provide a low-risk short selling opportunity in either DIA or QQQQ. Though the S&P 500 is back above its 200-day MA, we remain short SPY due to overhead resistance of the 1,163 level, as well as the prior uptrend line on the weekly chart. On the long side, BBH (Biotech HOLDR) remains very strong and is sitting at a new multi-year high. Watch for new highs in the coming days. In a general sense, remember that broad market volume has been contracting overall, so it’s not a bad time to be sitting in a cash position, waiting to pounce on the direction of the next high-volume move in the broad market.
Today’s watch list:
There are no new trade setups for today, although we remain long PPH and short SPY. BBH continues to look great, but we are not holding an “official” position.
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.
PPH long (from April 7) –
bought 72.80, stop 72.90, target 77.60, unrealized points = + 1.73, unrealized P/L = + $173
SPY short (from April 20) –
short 114.72, stop 117.10, target 109.20, unrealized points = (1.61), unrealized P/L = ($322)
No changes to the open positions.
Edited by Deron Wagner,
MTG Founder and