Avoid Overtrading?


Stocks ended the day higher on Thursday amidst light trade. All five major indices ended the session in the black. For most of the day stocks traded near session highs but a late burst of selling subdued an otherwise solid day for the market. The S&P 500 led the move as it tacked on 0.75% on the day. The Dow Jones Industrial Average improved by 0.6% while the S&P MidCap 400 posted a 0.5% improvement. Both the Nasdaq and the small-cap Russell 2000 closed higher by 0.4%.

Market internals ended the session mixed. Turnover slid over 18% on the Nasdaq and 11.8% on the NYSE. However, for only the second time in seven sessions, advancing volume was higher than declining volume on both major exchanges. Up volume outpaced down volume by a factor of 3.1 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Thursday’s light volume suggests a lack of institutional participation in the rally. Due to the poor volume Thursday would not be considered an accumulation day for the market.

Given the recent multi-day selloff it is a good time to review the status of the broad market. From June 1st through June 8th the S&P 500 dropped 65 points or nearly 4.9%. Further, during this timeframe the index set a new swing low (lower-low) as it lost support of the prior swing low of 1,294. This suggests that we could be in a trend reversal. Yesterday the S&P found support at the two day low (approximately 1,277) and closed higher for the first time in seven days. For the moment, it appears that this broad market index has put in a short term bottom. Given the absolute level of the recent decline we believe the two most likely alternatives for the market is either a multi-day bounce into the 20-day EMA (1) or a sideways consolidation move (2) prior to resuming further selling. We find that this type of evaluation helps to prevent “over trading” during times when the market is likely to deliberate. It is during these moments that it is easy to get chopped up by the market.

On the first unanimous up day in the market in six sessions, the iShares Dow Jones US Real Estate ETF (IYR) dropped below its 10 month uptrend line and closed near session lows. Further, this selloff occurred on a spike in volume. This exhibition of relative weakness to the broad market does not bode well for IYR in the event the market resumes the recent downtrend. A move below yesterday’s low of $59.63 could present a shorting opportunity in this ETF.

Thursday’s late selling was not the type or price action that is indicative of a healthy market. Despite the oversold condition in the market we are not inclined to take long positions even if the market improves on yesterday’s close. We believe this would be fighting the current trend. Instead we suggest waiting for short setups to develop as the market deliberates (find ETFs with relative weakness). It is also a good time to carefully monitor stocks that exhibit relative strength as they will provide excellent long opportunities once the market stabilizes.

Today’s Watchlist:


Shares = 300
Trigger = 62.17
Stop = 63.57
Target = 59.55
Dividend Date = n/a

Notes = There is no inverse setup to TUR. Please call broker and ask them to locate shares to short.

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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  • No changes to open positions.

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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader