market timing model: 

BUY (click here for more details)

today’s watchlist (potential trade entries):

open positions:

Below is an overview of all open positions, as well as a report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on two separate $50,000 model portfolios (one for ETFs and one for stocks). Changes to open positions since the previous report are listed in red shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

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closed positions:

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ETF position notes:

• Please note that the buy entry in MZZ is a buy limit, so we are buying on a pullback only . The price action must come down and touch the trigger for an entry. If the trade gaps more than 1.3% below the entry on the open it is to be cancelled.
• We are selling IBB at market on the open to lock in a small gain.

stock position notes:

• Please note that the short entry in GOOG is a sell limt, so we are shorting on a bounce only . The price action must run up and touch the trigger for an entry. If the trade gaps more than 1.3% above the entry on the open it is to be cancelled.
• We are selling LF and AMLN at market on the open.

ETF and broad market commentary:

Yesterday 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.

Internals were decidedly bearish on Thursday. Volume ran 13.7% higher on the Nasdaq and 9.5% higher on the NYSE. Declining volume overwhelmed advancing volume on both exchanges. By the closing bell, the ratio of declining volume to advancing volume stood at 15.5 to 1 on the NYSE and 5.5 to 1 on the Nasdaq. Based on the big spike in volume, it was clear that institutions were actively dumping stocks throughout the day.

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 position in the ProShares UltraShort MidCap 400 ETF (MZZ). The only way to enter this trade and keep the reward to risk ratio favorable, is to buy it on a pullback. We are adding MZZ to the watchlist. Trade details are available to our subscribers in the watchlist segment of the newsletter.

Yesterday, on a surge in volume, ProShares UltraShort FTSE China 25 ETF (FXP) gapped up, sliced through its 200-day MA and closed at session highs. A volume fueled move above yesterday’s high of $30.00 could provide a buy entry trigger for this ETF. We are placing FXP on the watchlist. Trade details are posted in the watchlist section of the newsletter.

Although IBB held up reasonably well yesterday, due to the poor market action, we will be selling this position at the market, on the open. We cancelled the setup in DUST yesterday, because it gapped more than 1.3% above its entry trigger. However, we did enter UUP when in hit its trigger early in the session. Given the magnitude and breadth of yesterday’s distribution day, our market timing model has now flashed a sell signal. 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.

stock commentary:

Yesterday’s selling was flat out ugly and forced our timing model back in to sell mode. The reason why the buy signal failed so quickly this time is that yesterday’s distribution day arrived within five sessions of the Nasdaq follow through day on 6/15. Along with the heavy selling in the broad market averages we have seen very little follow through in breakouts, especially in stocks we bought like ELLI, SXCI, and LF. This isn’t the type of action we want to see after a follow through day so we are making a judgement call to exit remaining open positions on tomorrow’s open.

 

We have two new short setups on today’s watchlist in GOOG and KORS. Please note that the GOOG entry is on a bounce, so the price action will have to go higher for the order to be filled.

If you are a new subscriber, please e-mail rick@morpheustrading.com with any questions regarding our trading strategy, money management, or how to make the most out of this report.

 
relative strength watchlist:

Our Relative Strength (or RS) Watchlist makes it easy for subscribers to import data into their own scanning software, such as Tradestation, Interactive Brokers, and TC2000. This list is comprised of the strongest 100 (or so) stocks in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Watchlist can be downloaded by logging in to the Members Area of our web site.