After beginning the day with an opening gap down, the broad market trended lower for the first hour of yesterday’s session. But price support from the lows of April 22 enabled the major indices to reverse and drift higher throughout the afternoon. Although the broad market trended higher throughout most of the day, there was a lack of momentum. The Nasdaq Composite, for example, had difficulty pushing through resistance of its previous day’s close and gained only 0.2%. The S&P 500 and Dow Jones Industrial Average moved higher by 0.4% and 0.5% respectively. Overall performance of individual industry sectors was mixed,as half the sectors we follow closed in the red and half closed with gains. There continues to be a lack of obvious industry sector leadership within the broad market, a common occurrence in weak markets.
Total market volume within the NYSE rose by 7% yesterday, while volume in the Nasdaq increased by 5%. Because the major indices closed higher and on higher volume, yesterday was technically a bullish “accumulation day,” which is ironic considering the previous session was a “distribution day.” Nevertheless, market internals were mixed and failed to confirm the typical strength of an “accumulation day.” Despite closing higher on the day, declining volume still outpaced advancing volume in the Nasdaq. Declining issues in the Nasdaq also marginally outnumbered advancing issues. In the NYSE, breadth was positive, but not by a wide margin.
One industry sector possessing an interesting weekly chart is the Banking Index ($BKX). On the week ending March 25, the $BKX index broke support of a long-term uptrend line that had been in place since the low of October 2002. Since then, the index has chopped around in a sideways range, below prior support of that uptrend line. The current week is now showing a rally into that prior uptrend line, which has now become the new resistance level. Because of the amount of overhead supply the break of that uptrend line has created, we feel there are now low-risk short selling opportunities within the Banking industry. The weekly chart of the $BKX below illustrates the new resistance of that prior uptrend line:
In addition to resistance of the prior uptrend line, also notice that both the 20 and 40-week moving averages will act as resistance as well. It’s not illustrated on the weekly chart, but the 200-day moving average is also overhead at the 99 price level. Two ETFs that track the financial-related stocks are XLF (Financial HOLDR) and IYF (iShares DJ Financial Sector), although neither of them directly track banking stocks. Also, please bear in mind that you are looking at a weekly, not daily chart of the Banking Index. As such, you would need to have a time horizon of at least several weeks to months in order to allow any short positions in the index to follow-through properly. If you only stay in positions for a few days before closing them out, shorting the banking index would be higher risk for you.
In yesterday’s newsletter, we analyzed the daily charts of the major indices and came to the conclusion that the broad market was likely to test support of its prior lows from last week. After the first hour of trading, each of the major indices were on their way to doing so, but the subsequent move higher throughout the day put the S&P, Nasdaq, and Dow back in “no-man’s land.” This means that, once again, the major indices are in the middle of their trading ranges and are showing very indecisive candlesticks on a daily basis. Therefore, nothing has changed in our broad market analysis since yesterday’s newsletter. The same support and resistance levels are valid going into today’s session, so you may want to review yesterday’s Wagner Daily for a recap of those important support and resistance levels. For now, it’s probably best to avoid entering any new positions until the major indices resolve themselves by either breaking out above the downtrend lines or falling below support of last week’s lows.
Today’s watch list:
As we now have three open positions (DIA and SPY short, PPH long), there are no new trade setups 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.
PPH long (from April 7) –
bought 72.80, stop 72.90, target 77.60, unrealized points = + 1.61, unrealized P/L = + $161
DIA short (from April 26) –
short 101.96, stop 103.90, target 97.10, unrealized points = + 0.06, unrealized P/L = + $6
SPY short (from April 20) –
short 114.72, new stop 117.25, target 109.20, unrealized points = (0.93), unrealized P/L = ($186)
SPY stop was raised by 15 cents due to the close proximity of the April 26 high.
Edited by Deron Wagner,
MTG Founder and