Here’s 2 Nasdaq stocks to watch
The major indices traded in a
sideways range throughout the first half of Tuesday morning,
but the bears took control in the afternoon, causing stocks to close firmly
lower across the board. As expected, both the Nasdaq Composite
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COMP |
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PowerRating) and
smallcap Russell 2000 Index
(
RUT |
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their 10 and 200-day moving averages and closed lower by 0.7% and 1.3%
respectively. The S&P 500
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SPX |
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DJX |
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fell 0.6%, but the midcap S&P 400 Index suffered a 1.2% loss. As we commonly see
in weak markets, each of the broad-based indices closed at their intraday lows.
Turnover increased in both exchanges Tuesday, resuming the
trend of higher volume on the down days. Total volume in the NYSE was 5% higher,
while volume in the Nasdaq increased by 16% over the previous day’s level. Both
the S&P and Nasdaq registered another bearish “distribution day,” but this was
not surprising considering that volume had declined in each of the three prior
up days. The last six days in the Nasdaq have consisted of three down days on
higher volume and three up days on lower volume. Furthermore, there has not been
a single “accumulation day” this month, but there have been many “distribution
days.” Such a pattern tells us that institutional players such as mutual and
hedge funds are continuing to sell into strength, while only retail investors
are interested in buying on the (infrequent) up days. Trade in the opposite
direction of institutions at your own peril.
In Tuesday’s Wagner Daily, we highlighted charts of the
Nasdaq Composite and
(
IWM |
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PowerRating) (iShares Russell 2000 Index), both of which were
had run into key resistance levels and were poised to resume their existing
downtrends. Given Tuesday’s action, it appears that both indices are indeed
positioned to resume their primary downtrends and will at least test support of
their prior lows from last week. In addition, the Dow Jones Industrial Average
has also reversed after running into resistance of its prior lows from August
and September. The dotted horizontal line on the chart below illustrates this:
Why did the Dow reverse at the 10,350 area? It reversed
because the most basic tenet of technical analysis states that a prior
support level will always become the new resistance level after the support is
broken. Notice how the Dow previously bounced off the 10,350 level on
several occasions, but then fell below it on October 5. As such, investors who
were trapped when the Dow broke support can now be expected to sell on any rally
attempt back up to that level because human nature is for a person to “just
break even.” This is how a prior support level becomes the new resistance after
the support is broken.
(
DIA |
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PowerRating), which is the ETF that tracks the Dow, traded
below our trigger price listed in yesterday’s Wagner Daily, so Morpheus
is now short the Dow based on the pattern above. We anticipate a retest of the
October 13 low and possibly more within the next few days. The short re-entry in
IWM (iShares Russell 2000) also triggered yesterday and is looking good so far.
We expect the Semiconductor sector to be active today, as
sector leader Intel reported its quarterly earnings after yesterday’s close.
Although Intel met revenue expectations, they fell short of analyst EPS
expectations and was last seen trading significantly lower in the after-hours
market. The negative reaction to Intel’s report, along with several other
mediocre earnings reports, is also weighing heavily on the overnight futures
markets. As of the time of this writing, both the S&P and Nasdaq futures are
positioned for a substantial opening gap lower this morning. Beware of high
market volatility continuing throughout the week, particularly in the Nasdaq, as
Ebay
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EBAY |
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PowerRating) reports tonight and Google
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GOOG |
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PowerRating) presents their numbers
after tomorrow’s close. Remember that whether or not a company beats or misses
expectations is irrelevant; all that matters to short-term traders is the
market’s reaction to the numbers. As always, be sure to
trade what you see, not what you think!
Open ETF positions:
Short DIA and IWM (regular subscribers to
The Wagner Daily receive detailed stop and target prices on open
positions and detailed setup information on new ETF trade entry prices. Intraday
e-mail alerts are also sent as needed.)
Deron Wagner is the head trader of Morpheus Capital
Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com),
which he launched in 2001. Wagner appears on his best-selling video, Sector
Trading Strategies (Marketplace Books, June 2002), and is co-author of both The
Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader
(McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and
Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and
financial conferences around the world. For a free trial to the full version of
The Wagner Daily or to learn about Deron’s other services, visit
morpheustrading.com or send an e-mail
to
deron@morpheustrading.com .