The markets wrapped up last week with a wild session of volatility that resulted from the recent tug-of-war between the bulls and bears. The bulls quickly stepped in after stocks gapped lower on the open, enabling the major indices to surge upwards and test their key resistance levels into the early afternoon. As of 2:00 pm EST, the Nasdaq was trading at a seven-week high and the S&P 500 was at its 52-week high, but the bears promptly sold into the intraday strength during the final hour of the session. By day’s end, the major indices had finished where they opened, in negative territory, and in the bottom third of their intraday ranges. The Nasdaq Composite fell 0.4%, the S&P Midcap 400 0.3%, and both the S&P 500 and small-cap Russell 2000 lost 0.2%. The Dow Jones Industrial Average was unchanged.
Total volume in the Nasdaq increased by 12% over the previous day’s level last Friday, causing the Nasdaq to register a bearish “distribution day.” Conversely, turnover in the NYSE declined by 12%, preventing the S&P from registering a third “distribution day” for the week. In the March 3 issue of The Wagner Daily, we discussed how the Nasdaq had been showing more bullish volume patterns than the S&P, but Friday’s day of institutional selling in the Nasdaq changed that. Both indices had two “distribution days” last week, although the Nasdaq also managed one “accumulation day” as well.
In Friday’s newsletter, we took an updated look at the performance of individual sector ETFs we had been following. Today, we will discuss the current technical situation of the major broad-based ETFs as well. Let’s begin with looking at a daily chart of SPY, the keystone ETF that mirrors the performance of the S&P 500 Index:
As you can see, SPY rocketed up to test its February 27 high last Friday, but promptly reversed after trading only 3 cents above it. SPY finished the day only 11 cents off its intraday low and also formed a bearish “inverted hammer” candlestick (circled above). Although Friday’s action was bearish, the bigger picture still shows that SPY is stuck in the middle of a two-week trading range. In fact, SPY closed at 128.81 on the week ending February 17 and closed at 128.76 last week. It’s easy to see that the S&P has been very choppy and indecisive over the past two weeks, but we expect a break out of the recent volatility contraction, either up or down, in the coming week. While it is bullish that the S&P has been consolidating near its 52-week high for the past two weeks, both the recent volume patterns and failed breakout attempts on February 27 and March 3 are bearish; hence the erratic action on Friday. One thing, however, is certain. The longer volatility contracts, the stronger the eventual range expansion will be, so be on guard for a substantial move in the coming week.
QQQQ, the ETF that mirrors the Nasdaq 100 Index, probed above its recent trading range last Friday, but closed back in the range and only 6 cents above its intraday low:
Like SPY, the Q’s also finished the week with an “inverted hammer” candlestick on its daily chart. But more importantly, QQQQ has been unable to hold above resistance of its 50-day moving average. Looking at the chart above, notice how the 50-MA has acted like a brick wall over the past week. Obviously, Friday’s failed breakout above the range and the 50-day MA left a lot of overhead supply in its wake. Furthermore, unlike SPY, QQQQ still remains well off its 52-week high. As such, we feel it will be difficult for QQQQ to break higher and out of the range in the near future. A more likely scenario is that the Q’s will fall back down below its 20-MA and retest its February low in the coming weeks. A break of the February 28 low of 40.97 should confirm this. For an accurate leading indicator in the Nasdaq, we recommend following the price action in the Semiconductor Index ($SOX), as this has been the main sector holding the Nasdaq up. Remember also that QQQQ mirrors the Nasdaq 100 Index and not the broader-based Nasdaq Composite. ONEQ is the relatively unknown ETF that mirrors the Composite Index.
Finally, take a look at the daily chart of DIA, the ETF that tracks the blue chip Dow Jones Industrial Average:
The long tail (or wick) on the “inverted hammer” candlestick above tells us it was a wild roller-coaster ride in the Dow last Friday as well. The Dow showed the most relative strength of the three major indices last month because it was the only one that had broken out to a new multi-year high. However, the Dow finished last week below new support of its prior high from January 11. Therefore, we need to be on alert for a potential failed breakout to that new high. For now, the 20-day MA is providing support, but a fall below that level could trigger the downward momentum that typically results from failed breakouts.
For those of you who are new to candlestick charting and don’t have any idea what an “inverted hammer” is, we recommend you check out the free tutorial on StockCharts.com. Morpheus Trading Group has no affiliation with that site, but the free educational material there is quite nice.
There are no new setups for today, as we are near our maximum buying power of the model account. We do, however, expect resolution on the SPY in one direction or the other in the coming days.
Daily Performance 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):
SPY short (600 shares from Feb. 28 entry) –
shorted 129.04 (avg.), stop 130.35, target 125.70, unrealized points = + 0.28, unrealized P/L = + $168
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
No changes to open positions.
here for glossary and explanation of terms used in The Wagner Daily
Click here to view MTG’s past performance results (updated monthly).
Edited by Deron Wagner,
MTG Founder and