The S&P 500 followed up last Friday’s breakout with a lethargic day of tight, sideways consolidation. The other indices behaved in the same manner. The Nasdaq Composite, S&P Midcap 400, and Dow Jones Industrials each eked out gains of 0.1%, but the S&P 500 closed lower by the same percentage. The small-cap Russell 2000 was unchanged. It was an uneventful day overall, as the S&P 500 oscillated in a very narrow, three-point range throughout the session.
Like the previous day, turnover declined across the board. Total volume in the NYSE was 8% lighter, while volume in the Nasdaq was 10% lighter than the previous day’s level. Lower volume is common on consolidation days and indicates the bulls are taking a break, but the sellers are not stepping in either. Market internals were largely neutral yesterday as well. Because the Feds are announcing their decision on interest rates tomorrow, trading is likely to be quiet in today’s session as well. The “smart money” will likely be taking a “wait and see” approach ahead of the Fed meeting.
While both the S&P and Dow have broken out to new multi-year highs, the Nasdaq Composite continues to lag behind. The index reversed back above its 50-day moving average on May 4 and followed up with two consecutive “up” days, but there has been a general lack of momentum the entire time. This is attributed to the fact that volume has declined and been below average levels in each of the past three days of gains. The most powerful breakouts have been in sectors such as Transportation, Banking, and Utilities. Technology and Biotech stocks have lagged behind. The S&P has virtually no overhead resistance, but the Nasdaq closed yesterday right at resistance of its downtrend line from the April 20 high:
It will be interesting to see whether or not the Nasdaq breaks out above its three-week downtrend line. If it does, it could easily rally to new highs and help to confirm the strength in the other major indices. But if it doesn’t, the tech-heavy index could act as an anchor that holds the S&P down. The broad market can certainly rally without the Nasdaq in tow, but the question is for how long.
Because of the uncertainty surrounding tomorrow’s Federal Reserve Board meeting, we do not recommend entering new positions today unless you intend to only daytrade them. We have a few sectors we are stalking for potential entries, but are not interested in doing so ahead of the Fed. As such, we will wait until we see the reaction from tomorrow’s Fed meeting before providing you with new technical analysis on any sectors we are considering buying or selling short. In the meantime, we’re watching the Broker-Dealer sector ($XBD) for a potential reversal back to the lows and the Utilities ($DJU) for potential follow-through to the upside.
Because of the Fed meeting tomorrow, there are no new setups today. After we see the market’s initial reaction to the Fed’s decision on interest rates, we will re-assess the market conditions and begin stalking new trade setups for entry.
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):
UTH long (200 shares from May 5 entry) –
bought 115.65 (avg.), stop 112.45, target 119.95, unrealized points = (0.01), unrealized P/L = ($2)
XLE short (400 shares from May 3 entry) –
sold short 58.66, stop 59.95, target 54.05, unrealized points = + 0.06, unrealized P/L = + $24
Closed positions (since last report):
IYR short (400 shares from April 24 entry) –
sold short 71.04, covered 71.94, points = (0.90), net P/L = ($368)
Current equity exposure ($100,000 max. buying power):
After forming a “higher low” on its daily chart, IYR creeped back up above its previous high and stopped us out. We liked the setup, but there just was not much follow-through after the initial wave down.
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Click here to view MTG’s past performance results (updated monthly).
Edited by Deron Wagner,
MTG Founder and