A third day in a row of heavy selling took the major averages down another notch yesterday, causing all three to close an average of 1% down on the day. The Dow got clipped by 103.49 (.99%), the S&P lost 11.14 (.91%), and the Nasdaq Composite shed 24.69 to close off by 1.16%. Outside of energy issues (which seem to be one of few bright spots as of late), selling was across the board in a broad range of sectors with the “backbone of the Nasdaq” Philadelphia Semiconductor Index getting hit quite hard, losing 1.77% on the day. Insurance, Software, and Broker-Dealers also experienced major profit taking, with each of the aforementioned losing more than 1.50% in yesterdays action.
Turnover was high for the second day in a row with the overall volume increasing by 14% on the NYSE and coming in just 3% lower than Tuesday’s trade on the Nasdaq. This on the heels of a 16% increase in overall volume on the Nasdaq on Tuesday would tell us that the overall Nasdaq volume yesterday was quite respectable. Decliners out paced advancers on the NYSE by 1097, and by 1519 on the Nasdaq. Declining volume was running 3 to 1 in relation to advancing volume on the NYSE, and 3.6 to 1 on the Nasdaq at the closing bell. As mentioned yesterday, if we take into account that Friday’s huge overall volume was an anomaly that was skewed due to outside factors, we have now had three distribution days in a row on the New York Stock Exchange. This is relatively rare and should be interpreted as quite bearish. Keep in mind that overall volume patterns tend to lead the markets by a margin of a few weeks to a month, so the effects of these high turnover down days may very we!
ll manifest themselves in some panic selling later on if the market begins to systematically post lower highs in the months going forward.
When the markets surged forward in early September after a rather dismal August, there were many analysts who were crowing about the fact that the market was able to recover 90% of the earlier month’s losses in just six trading sessions between September 1st and September 9th. It should be noted that virtually all of those gains have been taken back in only three trading sessions. The daily chart of the S&P below illustrates this key technical event.
Pay attention to the lower horizontal blue line in the chart above. This psychologically significant 1200 area in the index is where we bounced at the end of August and set the stage for the early September rally. It should be clearly noted, however, that the September advance fell short of the prior 2005 (and four year) highs at 1245.86 and has now been all but erased in three days as mentioned above. It would be easier to call for the 1200 area as strong support that could be buyable if the other averages were also holding just above their pivots that correspond with the late August lows. The problem here is that they are not. As evidenced by the charts below, the Dow is dangerously close to breaking this support area and the Nasdaq (which tends to act as a leading index), has already lost it.
All of the above only confirms what was said in yesterday’s publication. That being that regardless of what all the talking heads in the media are saying, the market is still range-bound and has no clear direction in the near term. Some sectors are moving and some are not. Be selective out there.
There are no new trade setups for today although we may be looking to test the waters with SMH long very soon. The semis have been down for six days in a row now and could be due for a technical bounce.
Daily Reality Report:
Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below:
Open positions (coming into today):
GLD long (800 shares total — bought 500 on Sept. 7 and 300 on Sept. 9) –
bought 44.59 (avg.), new stop 45.00, target new high (will trail stop), unrealized points = + 2.47, unrealized P/L = + $1,976
IYR short (400 shares from Sept. 13) –
shorted 65.77, new stop 64.60, target 61.10, unrealized points = + 2.75, unrealized P/L = + $1,100
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
GLD advanced again yesterday and Gold was up sharply after hours so we expect a gap up tomorrow morning to sell into on GLD. We will more than likely take profits on one quarter of the position in the morning. An email will go out close to the open. IYR is looking great here after an extremely bearish day yesterday and is approaching our target. We will also take some partial profit tomorrow on this short more than likely.
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Edited by Deron Wagner,
MTG Founder and