Commentary:

Stocks closed higher across the board last Friday, but the S&P 500 was unable to overcome resistance of the previous day’s high and the Nasdaq again lagged behind. After trending higher throughout the first ninety minutes of trading, the major indices consolidated in a narrow range for the next four hours. A wave of selling hit the broad market just before the final hour, causing both the S&P and Nasdaq to retrace more than half of their intraday gains, but both indices recovered to finish near their intraday highs. Small caps showed relative strength for a change, as the Russell 2000 Index gained 1.1%. Both the S&P 500 and S&P Midcap 400 indices advanced 0.7%, while the Dow Jones Industrial Average closed 1.0% higher. Continued weakness in tech stocks again held the Nasdaq down, limiting the index to a 0.6% gain, but at least the Nasdaq snapped its six-day losing streak.

Total volume in the NYSE rose 4% last Friday, but was 11% lighter than the previous day’s level in the Nasdaq. The higher volume gains in the NYSE caused the S&P to register a bullish “accumulation day,” but it was negative that turnover was quite a bit lower in the Nasdaq. Nevertheless, market internals finished positive in both exchanges. In the NYSE, advancing volume exceed declining volume by a margin of just over 3 to 1. The Nasdaq’s ratio, however, was positive by only 1.7 to 1.

After closing below its 50-day moving average the prior day, it was positive that the S&P recovered back above it last Friday, but the rally lacked conviction overall. Despite the gains of 0.7% in the S&P and 0.6% in the Nasdaq, both indices closed below their respective highs of the previous day. The Nasdaq, in fact, only recovered about 50% of the prior day’s loss. The S&P 500 fared better, but was unable to trade through resistance of the prior day’s high. The 15-minute intraday chart of the S&P 500 below illustrates this:

When a market consolidates near its intraday highs for several hours, as the S&P did last Friday, it usually leads to new highs into the close. But in this case, the S&P fell below the range of its consolidation instead. It managed to recover in the final thirty minutes of trading, though there was certainly a bit of indecision that afternoon. Looking at the daily chart of the S&P, you will also notice that the index has had trouble with overcoming its 20-day moving average:

The biggest problem facing the broad market right now is major relative weakness in the tech stocks. Compared to the S&P, which attempted to break out above the previous day’s high, notice how the Nasdaq only managed a 50% retracement of the prior day’s range:

Although not illustrated on the intraday chart, the Nasdaq remains firmly below resistance of its 50-day moving average, presently at 2,278. Watch that level of resistance in the coming week, as it could remain a major problem for the broad market if the Nasdaq does not quickly recover above it. The S&P Midcap 400 Index also is consolidating near its lows, below the 50-day moving average. That index is likely to act as an anchor on the broad market as well.

While the Dow has been trying to pull the broad market higher, the Nasdaq has been pulling it lower. It’s been a tug-of-war over the past several days, but it will be difficult for the broad market to advance if tech stocks don’t recover. Many leading tech stocks and their corresponding sectors now have badly damaged charts that sustained a lot of technical damage. While they could certainly recover, it will take time. For now, any bounce in the tech arena is likely to be met by selling due to the overhead supply that formed when the Semiconductors slid rapidly last week. Therefore, despite last Friday’s broad-based recovery attempt, our overall bias has not changed. We still feel short-term odds favor the short side of the market, but recommend restricting your short selling operations to the small and mid-cap stocks, particularly those in the tech arena. Caution remains warranted on the long side of any sectors.

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Today’s Watchlist:

There are no new trade setups for today.

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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):
MDY short (300 shares from March 9 entry) –
shorted 139.41, stop 141.90, target 134.20, unrealized points = (0.71), unrealized P/L = ($213)

IYT short (300 shares from March 10 entry) –
shorted 78.84, stop 80.90, target 75.30, unrealized points = (1.13), unrealized P/L = ($339)

Closed positions (since last report):

(none)

Current equity exposure ($100,000 max. buying power):

$66,027

Notes:


IYT triggered last Friday.

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Edited by Deron Wagner,
MTG Founder and
Head Trader