Commentary:
The stock market drifted lower throughout last Friday’s session, but lighter volume softened the blow. Not surprisingly, small and mid-cap stocks maintained their pattern of relative weakness. The Russell 2000 Index fell 1.1% and the S&P Midcap 400 declined 0.9%. The Nasdaq Composite lost 0.7%, the S&P 500 0.4%, and the Dow Jones Industrial Average 0.3%. Each of the major indices oscillated within their respective trading ranges of the previous day, meaning not much changed on a technical level. A modest wave of buying late in the afternoon lifted the broad market off its intraday lows.
Volume again declined in both exchanges, but this time the lower turnover was positive because it coincided with broad-based losses in the market. In the NYSE, total volume declined by 17%, while volume in the Nasdaq was 18% lighter than the previous day’s level. Unlike a majority of recent “down” days in the market, lighter volume this time indicated that institutions were not aggressively selling. Instead, the losses were more the result of a lack of strong buying interest. As we often see in the month of August, volume levels have been pretty lethargic over the past several weeks. Friday’s session saw the least number of shares change hands in more than a month, but many traders and investors have begun to take their annual summer vacations.
The S&P 500 declined 1% last week, but the loss did little to change the overall technical picture of the broad market. Throughout the past four days, the 200-day moving average has acted like a magnet for the index, which has alternated between closing just above or below that pivotal level. The S&P closed the week below its 200-MA, but support of both the 20 and 50-day moving averages is right underneath last week’s closing price. Throw in the fact that volume is likely to remain light for the next several weeks and you’ve got strong odds that the market will chop around in a sideways range in the short-term. As the chart below illustrates, the S&P has been stuck in a range from the area of 1,260 to just over 1,280. Until the index firmly closes above or below that range, we are taking it easy with entering new positions:
The Nasdaq Composite has similarly been trading in a tight range from around 2,050 up to 2,098. On August 4, the Nasdaq broke out above that range on an intraday basis, but overhead resistance of its 50-day moving average caused the index to sell off and close back within its prior range. Looking at the daily chart of the Nasdaq, notice how the 50-day moving average has converged with its primary downtrend line for quite some time. Obviously, there is no point buying tech stocks and ETFs until the Nasdaq eventually breaks out above that confluence of resistance. Price confirmation would occur from a closing price above the August 4 high, while a rally on stronger volume would confirm the return of institutional accumulation:
Presently, both the S&P and Nasdaq cash futures are pointing to significantly higher opening prices. The cease-fire between Hezbollah fighters and Israeli troops in Lebanon has likely been a contributing factor to this, but the big question is whether or not stocks will retain their gains throughout the day. Most opening gaps over the past several months have failed, as traders have used the higher prices as a chance to sell into strength. However, we do not recommend aggressively selling short into today’s gap unless the major indices clearly show an inability to sustain their opening gap prices. Now is probably a good time to simply focus on managing existing positions and building a new watchlist of stocks and ETFs for potential entry on both sides of the market. Doing so will enable you to be prepared when the S&P and Nasdaq finally break out of their recent ranges, though this may not occur until after the summer doldrums have passed.
Today’s Watchlist:
Until the S&P and Nasdaq break out of their ranges illustrated above, we are not excited about entering new positions. It is easy to overtrade in a range-bound, low-volume market, and we are not interested in churning our accounts. If, however, the market makes a big move intraday, we will send an intraday e-mail alert with any new ETF positions we assume.
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:
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Open positions (coming into today):
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IWM short (250 shares from August 1 entry) –
sold short 68.65, stop 70.80, target 61.70, unrealized points = + 1.05, unrealized P/L = + $263
SDS long (300 shares from August 8 entry) –
bought 70.73, stop 68.60, target 75.30, unrealized points = + 0.37, unrealized P/L = + $111
PPH long (250 shares from August 10 entry) –
bought 74.41, stop 72.65, no target (trailing stop due to new high), unrealized points = (0.56), unrealized P/L = ($140)
Closed positions (since last report):
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SLV long (100 shares from August 1 entry) –
bought 115.09, sold 117.77, points = + 2.68, net P/L = + $266
Current equity exposure ($100,000 max. buying power):
- $56,693
Notes:
Unfortunately, SLV hit our trailing stop by less than a nickel before recovering a bit last Friday, but we still have SLV on our watchlist. If it quickly blows off Friday’s weakness and snaps back above its hourly downtrend line, we will most likely re-enter it. Professional traders are never avoid re-entering a position they stopped out of if the setup still looks good. Even if you pay a higher price than where you sold, making several more points is better than making none. As always, we will send an intraday e-mail alert if we re-enter SLV.
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Click here to view MTG’s past performance results (updated monthly).
Edited by Deron Wagner,
MTG Founder and
Head Trader