Commentary:
As anticipated, the S&P 500’s touch of its 50-day moving average in the previous session gave the broad market a convenient reason to pause yesterday, but the moderate losses occurred on lighter volume. Stocks initially gapped to open near the prior day’s highs, but drifted back down throughout the morning. A very tight, sideways range dominated the subsequent afternoon trading session. The Nasdaq Composite eased 0.5%, the Dow Jones Industrial Average 1.2%, and the S&P 500 1.3%. The small-cap Russell 2000 slipped 1.1% and the S&P Midcap 400 lost 0.6%. All the major indices closed near the bottom of their intraday ranges.
Lighter turnover across the board enabled the main stock market indexes to avert the label of a bearish “distribution day.” Total volume in the NYSE was 6% lower than the previous day’s level, while volume in the Nasdaq receded 17%. Considering Wednesday’s trading registered way above average levels, it would have been a bearish sign of “churning” if volume had spiked even higher yesterday. Market internals were only marginally negative. In both the NYSE and Nasdaq, declining volume edged out advancing volume by a margin of approximately 3 to 2.
Yesterday’s pullback, triggered by resistance of the 50-day MA on the S&P 500, may have set the market up for a short-term correction from its recent lows. A further retracement would enable traders and investors to jump into new long positions with better reward-risk ratios than at current prices, but how far should we expect the major indices to correct? For smooth and steady uptrends such as the present, one of the best and most accurate technical analysis tools for predicting the depth of a pullback is the use of Fibonacci retracements. Below are daily charts of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average. On each, we’ve applied the main Fibonacci retracement lines of 38.2%, 50%, and 61.8%. You may want to set alerts on your trading software, so that you’re instantly notified if one of the major indices touches its 38.2% retracement level:
Most likely, the main stock market indexes will retrace down to anywhere between the 38.2% to 61.8% levels (roughly one-third to two-thirds of their gains from their March 9 lows to this week’s highs), but it’s impossible to predict exactly how deep the retracement will become. However, the true legitimacy of the current rally will make itself known, as the shallower the retracement, the stronger the market. Strong markets with clear bull dominance will typically retrace to just the 38.2% level (or even less) before ripping to set a new “higher high.” A really bullish market could merely trade sideways for a week or two, allowing the 20-day EMAs to catch up to the price, rather than even retracing off its highs. Conversely, shaky markets with less bullish conviction will frequently retrace down to the 61.8% level before heading back up. If, by some chance, the major indices happen to violate their 61.8% levels, all bets are off on the long side of the market because such action could quickly lead to a test of the March 9 lows.
Note that today is quarterly “quadruple witching” options expiration, the day on which contracts for stock options, stock index futures, stock index options, and single stock futures simultaneously expire. Typically, “quadruple witching” is marked by erratic movement in the stock market, caused by market participants taking large positions to jockey around their contract holdings. As a general rule, we usually avoid entering new positions on “quadruple witching” days because the session is often marked by fakeout moves that fail to follow through the following day. As such, we’ll simply be taking a “set it and forget it” approach to stops on our ETF positions, while likely delaying new trade entries until after the weekend. Let’s let this developing pullback play out in the coming days, while scanning for the next buy candidates if the retracement turns out to be short-lived.
Today’s Watchlist:
As per the commentary above, we typically avoid entering new positions on “quadruple witching” options expiration days. Instead, we’ll focus on managing our existing positions, as well as scanning the market to find the most promising potential new trades for next week.
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):
- All four of our open positions have moved into positive territory. No changes to stops at this time.
- 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.
- For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to [email protected] if not already set up for this value-added feature we provide to subscribers.
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QLD long (350 shares from March 17 entry) – bought 23.97, stop 22.18, target 28.27, unrealized points = + 1.90, unrealized P/L = + $665
UGA long (175 shares from March 4 entry) – bought 23.41, stop 20.49, target 31.30, unrealized points = + 1.30, unrealized P/L = + $228
USO long (150 shares from March 17 entry) – bought 29.08, stop 25.18, target 38.70, unrealized points = + 1.28, unrealized P/L = + $192
SLV long (400 shares from March 5 entry) – bought 13.14, stop 11.69, target 16.35, unrealized points = + 0.28, unrealized P/L = + $112
Closed positions (since last report):
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(none)
Current equity exposure ($100,000 max. buying power):
- $23,301
Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader