Commentary:
Ignoring the swift sell-off into the previous day’s close, the major indices opened several percent higher, then traded in a relatively narrow, sideways range throughout the entire day. The S&P 500 gained 2.6%, the Nasdaq Composite 2.5%, and the Dow Jones Industrial Average 2.1%. Small and mid-cap stocks, which fell the most throughout this month’s decline, showed relative strength for a second straight day. The Russell 2000 climbed 4.8%, as the S&P Midcap 400 advanced 4.2%. Both of these indexes also finished at the top of their intraday trading ranges, but the S&P 500, Dow Jones Industrials, and Nasdaq all closed just below their morning highs.
Total volume in the NYSE declined 15%, while volume in the Nasdaq decreased 6% below the previous day’s level. Although the lighter volume prevented the broad market from scoring what would have been its second “accumulation day” this week, stocks basically just consolidated yesterday. If not for the opening gap up, the main stock market indexes would have merely finished near the flat line. As such, we don’t think it’s negative that lower turnover accompanied yesterday’s gains. Further, market internals were quite solid. Advancing volume in the NYSE exceeded declining volume by a healthy margin of nearly 5 to 1. The Nasdaq adv/dec volume ratio was positive by 3 to 1.
As stocks continued to digest their October 28 gains, volatility settled down for a change. Yesterday’s intraday trading range of the S&P 500, for example, was the lowest it has been since October 1. The 35-point range from yesterday’s low to high still represented a significant range of nearly 4%, but that’s only about half the intraday volatility stocks have been experiencing lately. We view this lower volatility as a good thing because less erratic action means swing traders are less likely to stop out of good technical trade setups. We also think the market will continue to settle down next month, enabling volatility to return to more “normal” levels.
Overall, we like how the market has been acting the past several days. Yesterday’s gains were quite solid, but not frenzied. The two-day price consolidation has also been tight, and a handful of individual stocks have begun to outperform the broad market. Taking an updated look at the daily chart of the S&P 500, notice how the index is now poised to break out above its 20-day exponential moving average (EMA):
As you can see, the S&P 500 has remained below its 20-day EMA (the beige line) throughout the entire month of October. Last month, the index only closed above its 20-day EMA once (September 19). As such, a sustainable move above the 20-day EMA would definitely be a positive change of character for the overall market, at least in the short to intermediate-term. The Dow Jones Industrial Average and Nasdaq Composite have similar daily chart patterns as well. Regular subscribers to The Wagner Daily should note our new ETF trade setup below, which is likely to trigger for buy entry if the major indices break out above their short-term consolidations. Review yesterday’s newsletter for a list of ETFs we’re stalking for potential buy entry. As for the short side, we’re presently not looking for new entries. However, we will start to do so as the major indices approach key resistance of their 50-day MAs or suddenly start to roll over again, whichever comes first.
Today’s Watchlist:
SPDR Select Utilities (XLU)
Long
Shares = 250
Trigger = 30.02 (above prior high of Oct. 20)
Stop = 27.43 (below the 10 and 20-day MAs)
Target = 34.82 (resistance of 61.8% Fibonacci retracement from May 2008 high to October 2008 low)
Dividend Date = around December 20, 2008
Notes = As you can see on the hourly chart above, we’re planning to buy XLU on a breakout above its short-term consolidation and prior high from October 20. The relative strength in the Utilities sector was pointed out in yesterday’s Wagner Daily.
In addition to XLU, we also continue to monitor the following setups: FXY for possible entry on this pullback, LQD and PPH for possible entry on a breakout above their short-term consolidations. If we enter any of these positions, we’ll promptly send an Intraday Trade Alert with details.
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):
- No changes to our open position.
- 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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DGP long (350 shares from October 24 entry) –
bought 13.39, stop 11.48, target 17.28, unrealized points = + 0.00, unrealized P/L = + $0
Closed positions (since last report):
-
(none)
Current equity exposure ($100,000 max. buying power):
- $4,687
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader