Commentary:
A lazy session ahead of this Wednesday’s Fed meeting left the main stock market indexes little changed yesterday. The S&P 500 and Dow Jones Industrial Average traded in slightly positive territory throughout most of the day, but selling pressure in the final hour of trading caused the indices to lose 0.1% and 0.2% respectively. The Nasdaq Composite eked out a gain of 0.1%. The small-cap Russell 2000 showed bullish divergence by trending higher throughout the day and finishing 0.5% higher. The S&P Midcap 400 advanced 0.2%. It was a rather uneventful session overall, as the S&P 500 oscillated in a narrow trading range of just six points. Most of the major indices settled in the bottom third of their intraday ranges.
Not surprisingly, volume in both exchanges receded. Total volume in the NYSE was 7% below the previous day’s level, while volume in the Nasdaq declined 12%. Curiously, it’s been nearly six weeks since trading in the NYSE exceeded 50-day average levels. Turnover in the Nasdaq registered above average levels just twice in that period. Volume will likely remain at minimal levels for at least the next day and a half, as traders and investors are not likely to make big bets on the market ahead of Wednesday afternoon’s announcement on interest rates and economic policy.
Yesterday, the S&P 500 continued to toy with pivotal resistance of its February 2008 high, which we’ve been discussing over the past week. The broad-based index probed above the psychologically important 1,400 level intraday, but closed the session at 1,396. The S&P 500 remains the only one of the major indices still trading below resistance of its February 2008 high. As we mentioned in yesterday’s commentary, the S&P 500 technically closed above its February high last Friday, but not by a wide enough margin to confirm the breakout. The inability of the index to hold above the 1,400 level yesterday created a bit more overhead supply.
Drilling down to the short-term hourly time interval, you’ll notice that the S&P 500 is quickly approaching its hourly uptrend line that began with the April 1 “swing low” (the ascending blue line). The red dashed horizontal line marks exact resistance of the Feb. 1 high. The tug-of-war between the bulls and bears is about to get more interesting! Take a look at the hourly chart of the S&P 500 below:
Stocks are likely to remain in a tight holding pattern ahead of Wednesday’s announcement by the Federal Open Market Committee (FOMC) at 2:15 pm ET. If they do, the S&P 500 will run into support of the hourly uptrend line shown above at about the same time as the interest rate announcement. With pivotal overhead resistance of the S&P 500 between the 1,396 to 1,400 level, and support of the hourly uptrend line just below, we should expect high volatility on Wednesday afternoon. Making it even more interesting, don’t forget that the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all nearing resistance of their long-term weekly downtrend lines.
Frankly, there’s not much to do or say until we see the market’s reaction to the highly anticipated Fed meeting. Avoid aggressive entry of new positions until then. If planning to hold existing positions through Wednesday’s announcement, consider positioning your portfolio on both sides of the market. A full cash position is also ideal because it will enable you to quickly take advantage of upcoming opportunities on either side of the market with a clear head.
Today’s Watchlist:
There are no new setups in the pre-market today. We are targeting a few ETFs for potential entry, but will wait until the FOMC meeting before buying or selling short any ETFs that are directly correlated to the direction of the stock market.
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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SLV long (150 shares from April 28 entry) – bought 168.39, stop 165.69, target n/a (see notes below), unrealized points = + 0.01, unrealized P/L = + $2
UUP long (1,300 shares from April 25 entry) – bought 22.68 (avg.), stop 22.27, target 23.72, unrealized points = + 0.00, unrealized P/L = + $0
Closed positions (since last report):
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SDS long (300 shares from April 25 entry) – bought 58.11 (avg.), sold 56.78, unrealized points = (1.33), net P/L = ($405)
Current equity exposure ($100,000 max. buying power):
- $54,744
Notes:
Per Intraday Trade Alert, we bought SLV yesterday. Unlike most of our swing trades, this is expected to be a very short-term momentum trade. As such, there’s no specific price target. Rather, we’ll micromanage the position by observing intraday price action and selling into strength at the ideal time. Generally, we’re expecting a quick pop to resistance of the 20-day EMA (around 174.40). If it doesn’t happen within the next day or two, we’ll probably just scratch the trade. As always, we’ll keep you informed of any action via Intraday Trade Alert to your e-mail and/or mobile phone.
No opening price adjustment was required on the SDS stop, which was hit later in the session. With the S&P 500 at such a pivotal level, the index could still fall sharply, sending SDS much higher. However, we’re avoiding new entries in any broad-based ETFs until after Wednesday afternoon’s announcement. If the stock market’s reaction to the announcement is negative, we can quickly re-enter SDS (or any other inversely correlated ETF) at a similar price to where we sold yesterday. Waiting to first see the market’s reaction is the professional, low-risk way to handle the situation. Re-entering such a position ahead of the Fed announcement is akin to gambling.
Edited by Deron Wagner,
MTG Founder and
Head Trader