Commentary:
Stock’s rebounded from Monday’s sharp losses yesterday, as the major indices rallied to erase nearly half of the previous day’s losses. The S&P 500 gained 4.0%, the Nasdaq Composite 3.7%, and the Dow Jones Industrial Average 3.3%. The small-cap Russell 2000 climbed 5.9% and the S&P Midcap 400 advanced 4.8%. Though yesterday’s gains were quite significant, trading was rather indecisive. Stocks gapped up and trended higher all morning, fell to unchanged levels in the early afternoon, then rallied back sharply, to their mid-day highs, in the final ninety minutes of trading. Opposite of the previous day, all the main stock market indexes settled at their intraday highs.
One of the most positive aspects of yesterday’s rally is that higher turnover accompanied the solid gains. Total volume in the NYSE increased 6%, while Nasdaq volume similarly rose 9% above the previous day’s level. The higher volume gains across the board enabled both the S&P 500 and Nasdaq Composite to register a bullish “accumulation day.” On Monday, stocks suffered massive losses, but we said it was encouraging the decline occurred on much lower than average turnover. Trading in both exchanges still remains below 50-day average levels, but it’s positive that volume of yesterday’s “up” day was greater than the turnover of Monday’s “down” day. Market internals were solid, though Monday’s bearish internals were much worse than yesterday’s numbers were positive. Advancing volume in the NYSE exceeded declining volume by just under 8 to 1. The Nasdaq adv/dec volume ratio was positive by more than 6 to 1.
In yesterday’s The Wagner Daily, we illustrated how Monday’s sell-off caused the main stock market indexes to give back about half of their gains from the recent rally. However, more importantly, we suggested the fledgling rally attempt was still alive, as long as the major indices held above their 61.8% Fibonacci retracement levels from their November 21 lows to November 28 highs. Specifically, we said, “Over the next few days, we’ll be keeping a close eye on whether or not the major indices manage to hold above their 61.8% retracement levels from their November lows. If they do, we’ll consider a new long position in the broad market, but only after the major indices confirm a resumption of their short-term uptrends by moving back above their 10-day moving averages and/or 20-period exponential moving averages on the hourly charts.” Yesterday’s subsequent gains seem to have confirmed our analysis the rally is still alive, as the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all reclaimed support of their 10-day moving averages. This prompted us to buy a small position of Ultra S&P Midcap ProShares (MZZ), which has generally been showing relative strength to the broad market.
The short-term technical picture is looking better after yesterday’s recovery on higher volume. However, stocks must now contend with key resistance of last week’s highs. The real determinant of the market’s current strength will be whether or not the major indices are able to set “higher highs” by closing above their November 28 highs. If they do, it will also correlate to a breakout above their primary, intermediate-term downtrend lines we recently illustrated. Conversely, the lows of the past two days have become important short-term support levels. If the main stock market indexes suddenly fall below their lows of the past two days, it’s probably a good idea to quickly cut any correlated long positions. Downside momentum of such a decline would carry a significant chance of sending stocks back down to test last month’s lows. The key short-term support and resistance levels of the S&P 500 are illustrated on the daily chart below, and are correspondingly similar on the charts of the other major indices:
We are now long one broad-based ETF (MVV), one industry sector ETF (XLU), and two ETFs with a low correlation to the direction of the broad market (DGP and FXY). Until stocks break out above their November 28 highs, we don’t intend to get anything else. If, however, stocks confirm their recent strength by breaking out above their intermediate-term downtrend lines and forming “higher highs,” we will be more confident on the long side of the market. As for the downside, we’re avoiding the short side of the broad market unless stocks break below their two-day lows. If the market holds up, we’ll eventually be planning to initiate new short positions as stocks rally into resistance of their 50-day moving averages and October 2008 highs.
Today’s Watchlist:
There are no new setups in the pre-market. We’ll send an Intraday Trade Alert to your e-mail and/or mobile phone if any new actions are taken 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. 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):
- Per Intraday Trade Alert, we bought MVV yesterday, as the S&P Midcap 400 Index moved back above its 10-day MA.
- 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 (500 shares total — 350 from Oct. 24 entry, 150 from Nov. 19 entry) –
bought 13.51 (avg.), stop 13.87, unrealized points = + 1.07, unrealized P/L = + $535
FXY long (150 shares from Nov. 19 entry) –
bought 103.77, stop 105.74, target new high (will trail stop), unrealized points = + 3.16, unrealized P/L = + $474
MVV long (300 shares from Dec. 2 entry) –
bought 19.90, stop 17.89, target 30.80, unrealized points = + 0.57, unrealized P/L = + $171
XLU long (350 shares from Dec. 1 entry) –
bought 29.48, stop 27.49, target 36.60, unrealized points = (0.63), unrealized P/L = ($221)
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $39,568
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader