Commentary:
For the third consecutive day, the Nasdaq gapped higher on the open, trended lower into the afternoon, then reversed into the close to finish nominally higher. The other major stock market indexes have followed a similar pattern, though the Nasdaq continues to show the most relative weakness. The S&P 500 gained 0.3% and the Dow Jones Industrial Average advanced 0.2%, but the Nasdaq Composite was unchanged. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 0.3% and 0.5% respectively. Each of the major indices formed an “inside day,” meaning their intraday highs and lows were completely contained within their trading ranges of the previous day. The Nasdaq has had two straight “inside days,” indicating non-committal activity on behalf of both the bulls and bears.
Total volume in the NYSE declined by 6%, while volume in the Nasdaq was 15% lower than the previous day’s level. Lighter turnover on “inside days” is common, as it indicates the market is taking a rest after a period of high volatility. Declining volume fractionally beat advancing volume in the laggard Nasdaq, but the NYSE ratio was positive by just over 3 to 2. The markets are closed this Friday in observance of the Good Friday holiday, so volume is likely to remain tepid ahead of the long weekend.
One sector that may be forming an intermediate-term top is Aerospace and Defense. The iShares ETF that tracks the sector (ITA) tested and held above support of its 50-day MA several times last month, but now it appears to be forming a “lower high” on the daily chart. On the daily chart below, we have marked the new downtrend line that is forming, and circled support of its 50-day MA:
Obviously, we do not yet have confirmation of whether or not ITA is actually forming a “lower high” or just consolidating before moving higher. But if it breaks below its 50-day again, it will greatly increase the chances of significant follow-through to the downside, with a new upper channel of the intermediate-term downtrend being established. When a stock or ETF is trading just above its 50-day MA, each subsequent test of that level weakens the support. Therefore, each additional probe below support increases the likelihood of a breakdown. With topping formations, we focus on selling short stocks and ETFs that have tested and probed below their 50-day MAs at least three times within the past month. The next break below the 50-day MA will be the third occurrence. Leading stocks within the sector, such as Boeing and Lockheed Martin, have also begun to roll over and are already trading below their 50-day MAs.
Yesterday’s action did little to change the technical picture of the broad market. Although the major indices posted modest gains, the S&P, Nasdaq, and Dow each remain trapped between support of their prior highs from March and resistance of their 50-day moving averages. It’s bullish that the retracement off the March highs has not been very steep. However, it’s bearish that the indices are consolidating below their 50-day moving averages. The S&P 500, for example, has retraced less than one-third of its gain from the March 14 low to the March 23 high, but the index has tried and failed to rally back above its 50-day MA in each of the past three sessions. This leaves us with no choice but to patiently remain in “wait and see” mode. Remember that the S&P, Nasdaq, and Dow are still in both intermediate and short-term downtrends.
Today’s Watchlist:
There are no new plays for today, as we are near the maximum buying power based on the $50,000 model account.
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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DXD long (350 shares from March 27 entry) – bought 58.30, stop 56.78, target 63.10, unrealized points = + 0.29, unrealized P/L = + $102
GLD long (400 shares from March 28 entry) – bought 66.15, stop 64.18, target new high (will trail stop), unrealized points = (0.30), unrealized P/L = ($120)
IYR short (275 shares from March 13 entry) – sold short 85.75, stop 88.69, target 78.30, unrealized points = (0.50), unrealized P/L = ($138)
FXI short (200 shares from March 26 entry) – sold short 101.87, stop 105.60, target 89.60, unrealized points = (2.61), unrealized P/L = ($522)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $91,461
Notes:
No changes to the open positions.
Edited by Deron Wagner,
MTG Founder and
Head Trader