Commentary:
Traders returned from the holiday weekend in a complacent mood, as stocks meandered in a narrow range before finishing near the flat line and with mixed results. The Nasdaq Composite slipped 0.1%, but the S&P 500, S&P Midcap 400, and the Dow Jones Industrial Average each edged 0.1% higher. Although it was the Dow’s seventh consecutive day of gains, the index gained more than 0.4% in only one of those seven sessions. The small-cap Russell 2000 showed relative weakness by falling 0.2%. Each of the major indices closed in the bottom third of their intraday ranges, but that was not very significant because the trading ranges were so tight. Yesterday’s range in the S&P 500, for example, was only five points.
Total volume in the Nasdaq ticked 12% higher than the previous day’s level, while volume in the NYSE increased by less than 1%. Despite its higher turnover, the Nasdaq’s 0.1% loss was too small for the session to be labeled a “distribution day.” However, the day was indicative of “churning” that occurs when an index registers higher volume without a significant advance or decline in price. When this happens at the top of a range, it is a warning signal that often precedes institutional selling a day or two later. Nevertheless, total volume levels in both exchanges remained below average. Traders and investors were apparently not anxious to jump back in the markets yesterday. In both exchanges, advancing volume fractionally exceeded declining volume.
Each of the major indices have drifted above their “swing highs” from last month, but the move is suspicious because volume was so light on the way up. The problem is that it only takes one day of institutional selling (aka “distribution day”) to undo a week’s worth of gains that occurred on declining volume. Remember that each of the past seven “up” days have been on lighter than average volume, with only two of them showing higher volume than the previous day. This is illustrated on the daily chart of the NYSE volume below. Each green bar is a daily representation of the NYSE volume, while the orange line marks the 50-day average volume:
Regardless of the light volume, the markets can continue to drift higher until the inevitable “distribution day” sets in. Presently, both the S&P 500 and Nasdaq Composite are at resistance of their highs from February 27, the ugly day that triggered the current intermediate-term correction. If both indices can close firmly above those highs, it will be a bullish sign for the markets, as the entire loss from the intermediate-term downtrend will have been recovered. The dashed horizontal lines on the charts below illustrate resistance of the February 27 highs:
Quarterly earnings season officially kicks off today when Dow component Alcoa, Inc. (AA) reports after the close. Tomorrow, key companies Research In Motion (RIMM) and Genentech, Inc. (DNA) are scheduled to announce their latest quarterly results. General Electric (GE) reports on Friday. Other market leaders begin reporting next week. As per usual protocol, be aware of earnings dates of any individual stocks you enter in the coming weeks.
Today’s Watchlist:
There are no new pre-market setups for today.
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):
-
GLD long (400 shares from March 28 entry) – bought 66.15, stop 65.14, target new high (will trail stop), unrealized points = + 0.38, unrealized P/L = + $152
TWM long (400 shares from April 9 entry) – bought 66.25, stop 65.12, target 70.52, unrealized points = (0.25), unrealized P/L = ($100)
IYR short (275 shares from March 13 entry) – sold short 85.75, stop 88.69, target 78.30, unrealized points = (0.69), unrealized P/L = ($190)
Closed positions (since last report):
-
USO long (450 shares from April 5 entry) – bought 52.76, sold 50.84, points = (1.92), net P/L = ($873)
Current equity exposure ($100,000 max. buying power):
- $76,783
Notes:
Our April 5 long entry in USO when it pulled back to support of its breakout pivot was a quality, low-risk setup at the time, but the breakout nevertheless failed and stopped us out yesterday. Per intraday e-mail alert, we bought TWM yesterday. However, we have reduced our risk exposure to about 50% of the normal risk ($400 instead of $800). Until we snap the recent string of losing trades, it makes sense to decrease our capital risk exposure for all new trade entries. Just following the plan, true and steady, in the meantime. Note the new, tighter stop on GLD.
Edited by Deron Wagner,
MTG Founder and
Head Trader