Unconfirmed “buy” signal quickly reverts back to “sell” ($FXP, $MZZ, $DUST, $UUP)

Yesterday (June 21) was a dismal day on Wall Street. Stocks got blistered, as all five major indices fell two percent or more. The S&P MidCap 400 led the decline, as it fell 2.7%. The small-cap Russell 2000 slid 2.5%, while the Nasdaq plunged 2.4%. Large cap stocks performed fractionally better. The S&P 500 shed 2.2%, while the Nasdaq lost 2.0% on the session.

In recent weeks, the S&P MidCap 400 has been the weakest of all of the major indices. Yesterday, it was the only index to close below its 200-day MA. Because of this relative weakness, we are looking to enter a new swing trade position in the inversely correlated ProShares UltraShort MidCap 400 ETF ($MZZ).  However, the only way to enter this ETF trade and keep the reward to risk ratio favorable is to buy it on a pullback. We have added MZZ to today’s watchlist, and trade details are available to regular subscribers of The Wagner Daily newsletter:

Yesterday, on a surge in volume, the inversely correlated ProShares UltraShort FTSE China 25 ETF ($FXP) gapped up, ripped through resistance of its 200-day MA, and closed at session highs. Now, a volume-fueled move above the June 21 high of $30.00 could provide a buy entry trigger for this ETF. We are also placing this ETF on today’s watchlist for possible swing trade entry:

Given the magnitude and breadth of yesterday’s “distribution day” (higher volume selling), our rule-based market timing model has now flashed a sell signal. Although our market timing model only entered into a new “buy” signal a few days prior, we pointed out several times that the buy signal still lacked confirmation. When powerful distribution days occur within a few days of a buy signal, the vast majority of the time the buy signal will fail. Such is the world of trading, particularly when markets are at key turning points. It is also noteworthy that not a single market sector that we track ended up on the day. Further, for the most part, leadership stocks got hit hard. This is further evidence that the bears are back in control.

The commentary above is an excerpt from The Wagner Daily stock newsletter. Subscribers to the full version receive clear entry and exit prices for short-term trades of our best stock and ETF trade setups, access to our market timing model, and more. To get started today, sign up for your 30-day risk-free trial to our Wagner Daily stock newsletter.