Commentary:

Stocks closed lower on Wednesday and for a second consecutive day slid sharply into the close. In a reversal of Tuesday’s price action, smaller cap issues showed relative weakness on Wednesday as the small-cap Russell 2000 and the S&P MidCap 400 sank 4.1% and 3.8% respectively. The tech rich Nasdaq dropped 2.2% as the S&P 500 lost just over 2.0%. The Dow Jones Industrial Average showed the most resiliency on the day as it contained losses to just over 1.6%.

Internals were mixed on Wednesday. Volume fell across both exchanges. Turnover slid by 8.1% on the Nasdaq and 10.7% on the Big Board. However, declining volume easily outpaced advancing volume by 7.4 to 1 on the Nasdaq and 26.3 to 1 on the NYSE. Despite the lighter volume yesterday’s late day price action gave all the appearances of institutional distribution. At a minimum it was a follow through day for market bears.

Yesterday, via intraday alert we re-entered a position in the ProShares UltraShort Real Estate ETF (SRS) as it moved above Tuesday’s reversal candle. Although we had just taken a loss in SRS on Tuesday we did not hesitate to re-enter the trade when a quality setup presented itself. Each trade stands of its own merits. We also sent an alert that we were shorting the S&P Consumer Staples Select Sector SPDR ETF (XLP) as it broke the two day low. EFZ also triggered yesterday and we entered the position. Trade details for these positions are available to our subscribers in the open positions section of the newsletter.

Last week we discussed two key support levels on the S&P 500. There are two distinct swing lows in place that the S&P must hold or the market is likely to see another significant selloff. The first key level is 1,120 which was established last week. If we lose support at 1,120 then the next stop is likely the August 9th swing low of 1,100. If we breach the August low we could test the lows set in July-August of 2010. At a minimum, now that the market is within striking distance of the August 9th swing low, it appears likely that we will move to at least undercut this key mark.

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Today’s Watchlist:

There are no new official setups for today. We will send an intraday alert if any new trades are made.

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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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Notes:

• Per intraday alert, sold short XLP. We covered half of our position at 30.23, but re-entered the half position later in the day at 29.92. Bought SRS over the prior day’s reversal bar high. Per yesterday’s report, the EFZ buy entry triggered.
• 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 support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader