The Wagner Daily – Nasdaq Sell Signal: Bearish Trend Ahead?

The Wagner Daily – July 19, 2021

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MTG Market Timing Model –   Nasdaq Comp.  in danger of generating a sell signal w/ confirmed break of 20ema

Our timing model was designed to keep our trades in line with the prevailing market trend, not to call tops or catch bottoms in S&P 500 or Nasdaq Composite.

today’s watchlist (potential trade entries):

open positions:

closed positions:

position notes:

• No trades triggered.

Commentary:

Last week’s ugly action in the Nasdaq Composite ended with a close below the 20-day EMA. A break of Friday’s low would generate a sell signal in our timing model, though the model portfolio is already 100% in cash.

One could argue that since the Nasdaq held the 10-day EMA on a closing basis for 7 weeks that last Friday’s break of Thursday’s low which closed below the 10-day EMA is a sell signal. Either way, the Nasdaq looks like it may need to digest recent gains with sideways to lower price action.

$QQQ is still above the 20-day EMA but did close below the 10-day EMA after holding above for 7 weeks.

$QQQ is much stronger than the Nasdaq 100 equal-weighted ETF $QQQE. A few megacap stocks are doing all the work.

$SPY is still in trend mode above the 20-day EMA but much like $QQQ, a few stocks are doing all the work. Several sector ETFs that helped lift the S&P higher are already below the 50-day MA and struggling such as $XLF, $IYT, $XLE, and $XLB.

An ugly break of the 50ma in $XLB

$XLF has failed to reclaim the 50ma.

Since we focus on trading growth, the Russell Midcap Growth ETF $IWP is a decent proxy for what our type of stocks are doing. $IWP confirmed a break of the 20-day EMA last Thursday and is no longer in trend mode. During the next few weeks, we’d like to see $IWP hold the 50-day MA and tighten up once it bottoms out. For now, there is nothing to do with growth unless the price reclaims the 20-day EMA and holds.

Along with growth, we also follow high momentum stocks that have top relative strength ratings over a 1-3 month period. These setups often show up in the unofficial watchlist at the bottom of every report. The majority of these setups occur in small-cap stocks but with $IWM in chop mode for several months and now breaking down there isn’t much to do.

While the major indices discussed above are weak, they could certainly bounce higher for a day or two. However, we are in no rush to add long exposure if they do because our weekend scans were ugly.

As for the short side, aggressive traders may consider shorting strong stocks that are breaking down below the 20-day EMA for a quick 1-3 day trade. $SHOP, $BILL, and $CVNA are a few examples with entries beneath a prior day’s low or on a break of the 20-day EMA. For most of us, the short side should not be in play until major indices begin to live below the 50-day MA, which isn’t the case here. 

Our short-term plan is to lay low and see what develops during the next few days. As always, our focus is on reacting to price action and not trying to predict the future. The market may resume its uptrend in two weeks or two months, we never know.

Unofficial Setups – For experienced traders only, no guidance is given for these setups.

• none

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