Commentary:
The major indices wrapped up an extremely wild, volatile week with a second straight session of enormous gains. However, fully all of the advance was the result of another news-driven opening gap that disallowed for low-risk intraday buying opportunities. Stocks’ opening prices marked their best levels of the day, as the main stock market indexes subsequently oscillated in a sideways to slightly lower range throughout the entire session. The S&P 500 zoomed 4.0%, the Nasdaq Composite 3.4%, and the Dow Jones Industrial Average 3.3%. Small and mid-caps again showed the most relative strength. The Russell 2000 and S&P Midcap 400 indices scored identical gains of 4.2%. That brought the two-day gain of the small-cap Russell 2000 to an unbelievable 11.2%! The major indices closed at, or just above, the middle of their intraday ranges, but near their weekly highs. Incredibly, the S&P 500 moved more than 4% on four separate days last week; two sessions were gains of more than 4%, two were losses of more than 4%. Wow!
On September 18, turnover surged to mark the most active day of the year, but last Friday’s “quadruple witching” options expiration day caused total volume in the NYSE to rise another 15% above the previous day’s level. Volume in the Nasdaq also remained well above average levels, but eased just 2%. The S&P 500’s higher volume gain technically represented a second consecutive day of institutional buying (aka “accumulation day”), but turnover was undoubtedly inflated due to the simultaneous expiration of stock index futures, stock index options, stock options and single stock futures (SSF). In the NYSE, advancing volume handily outpaced declining volume by a margin of nearly 7 to 1. The Nasdaq adv/dec volume ratio was positive by just under 3 to 1.
As you probably heard by now, the SEC implemented a (temporary?) ban on short selling last week. As usual, the recent catastrophes in the financial sector have been blamed on “those darned short sellers,” rather than the remote possibility of corporate American greed. So, what better way to fix the problem than creating risky imbalances in our free-market system by restricting the actions of the bears? Regardless of how you feel about this new rule, we wish to remind our subscribers that the Short and UltraShort ProShares ETFs create a very easy (and legal) way around the short selling ban. Designed to move in the inverse direction of their underlying components, these ETFs give traders and investors a simple way to take bearish positions through merely buying an ETF. A list of ProShares ETFs with an average daily volume of at least 50,000 shares can be found on our free Morpheus ETF Roundup.
Looking at the daily charts, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all finished last week’s crazy session at resistance of their 50-day moving averages (MA). The last time the S&P 500 and Dow Industrials touched their 50-day moving averages, on September 8, they fell apart the following day. Below, the daily charts of these indexes illustrates how they both kissed their 50-day MAs last Friday, then closed right at or below that pivotal resistance level:
Although nothing would surprise us in this news-driven market environment, we do not think the major indices will fall to new lows after testing their 50-day MAs this time around. When the S&P and Dow reversed sharply after running into their 50-day MAs on September 8, they had not previously violated key support of their 52-week lows. Now, however, the indexes are rallying into their 50-day MAs after the broad market formed a possible “capitulation” day on September 18. This greatly increases the odds of the bullish reversal attempt eventually following through to at least establish a neutral to bullish intermediate-term trend. Nevertheless, because the major indices scored monstrous gains in just two days of trading, it could take a while before stocks build a strong enough base of support to move higher. A pause at current levels would actually be healthy for the intermediate-term trend of the stock market.
When pre-market futures indicated a monstrous opening gap in last Friday’s session, we said the following in our September 19 commentary. “At this point, our only realistic plan of action is to see how today’s session plays out, particularly with regard to whether or not the opening gap holds up. Then, as we enter next week, we’ll have a fresh list of bullish ETF setups on our radar screen to stalk for buy entry on a pullback. Hopefully, such a pullback will be moderate, and not result in giving back 100% of the massive gains of yesterday and this morning.”
So far, stocks at least passed the first test by retaining most of their opening gains throughout last Friday’s session. Over the next several days, we would like to see the main stock market indexes gently retrace some of their recent gains, or at least consolidate in a tight, sideways range. Such price action would cause “bull flag” patterns to form on their daily charts. If that occurs, we would also expect some new bullish ETF chart patterns to emerge. We, of course, will be on the lookout for such developments of relative strength and bullish divergence within the various industry sectors. As soon as volatility in the broad market settles down a bit, our focus and analysis will shift from chart patterns of the major indices to specific, actionable ETF trade setups. Stand by on alert throughout this week. . .
Today’s Watchlist:
There are no new setups in the pre-market, though we will begin actively scanning for new bullish developments in the coming days (as per the above commentary). As always, we will promptly send an Intraday Trade Alert if/when we enter anything new. Until then, capital preservation mode rules!
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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.
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Open positions (coming into today):
- We are now flat, waiting to cautiously buy new ETF setups on a pullback this week.
- Reminder to subscribers – Intraday Trade Alerts to your e-mail and/or mobile phone are normally only sent to indicate a CHANGE to the pre-market plan that is detailed in each morning’s Wagner Daily. We sometimes send a courtesy alert just to confirm action that was already detailed in the pre-market newsletter, but this is not always the case. If no alert is received to the contrary, one should always assume we’re honoring all stops and trigger prices listed in each morning’s Wagner Daily. But whenever CHANGES to the pre-market stops or trigger prices are necessary, alerts are sent on an AS-NEEDED basis. Just a reminder of the purpose of Intraday Trade Alerts.
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(none)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $0
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader