Commentary:

Stocks were pummeled yesterday as they reversed sharply in late session trading to close near session lows. Trade was brisk. All five major indices posted similar results. The Nasdaq and the S&P 500 both plunged 1.7%. The Dow Jones Industrial Average, S&P MidCap 400 and small-cap Russell 2000 all fell 1.6%. Wednesday was clearly not a good day for Wall Street.

In stark contrast to Tuesday’s results, market internals were decidedly bearish on Wednesday. Volume surged across the board. On the Nasdaq turnover increased by almost 16.0% while on the NYSE it climed 14.5%. In addition, declining volume held the upper hand on both exchanges. By the closing bell the ratio of advancing to declining volume stood at -5.5 to 1 on the NYSE and -2.5 to 1 on the Nasdaq. The late session surge in volume accompanied by stronger declining volume suggests that institutions were actively participating in the selling. Wednesday was a clear distribution day for the broad market.

Yesterday, on heavier trade, the iShares MSCI Japan Index ETF (EWJ) lost a major support level at $9.17. Prior to yesterday EWJ has held support at this level dating back to July 2009. Yesterday was a clear short entry trigger for EWJ. However, it is not advisable to “chase the trade”. Rather, we prefer to wait for a bounce if we were to enter EWJ on the short side.

The Market Vectors Junior Gold Miners ETF (GDXJ) has come under pressure lately as it has posted consecutive distribution days. Further, GDXJ is now below both the 20-day and 50-day moving averages. However, GDXJ is stilling clinging to support of its uptrend line. A loss of support of the uptrend line could result in a shorting opportunity in this ETF. We are monitoring this setup carefully for a potential short entry.

Despite the fact that the market posted another distribution day on Wednesday, the running 20-day total of distribution days remains at four. Distribution days are counted based on the most recent twenty day period. The distribution day that occurred on October 17th should no longer be counted since it falls outside of the most recent 20-day timeframe. Still, the number of distribution days remains high for a market that is trying to rally and caution is warranted.

---

Today’s Watchlist:

XRT
Long

Shares = 150
Trigger = 53.76
Stop = 51.17
Target = New swing high
Dividend Date = n/a

Notes = See commentary above

---

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

Having trouble seeing the position summary graphic above?
Click here to view it directly on your Internet browser instead.

Notes:

• We are counting the XRT buy limit alert sent on Tuesday as an official trade to be fair to those who entered the position. The result of the trade was a small loss. We are not officially long XRT right now and the setup above remains valid. We apologize for the error.
• 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