Potential pullback entry in (IBB)


The major indices surged on Thursday, snapping an eight day selloff. The session began with a strong opening gap and the market rallied until 10:15 am. For the remainder of the day the market consolidated and closed near the highs of the day. The advance was impressive in light of Tuesday’s heavy distribution. On strong volume, the Dow Jones Industrial Average, S&P 500 and Nasdaq all realized 1.6% advances in Thursday’s trading. The small-cap Russell 2000 and the S&P MidCap 400 posted gains of 1.9% and 1.4% respectively.

Turnover increased significantly during Thursday’s session. Nasdaq volume surged 12%, while turnover on the NYSE improved a whopping 30% day over day. Advancing volume easily outpaced declining volume on both the NYSE and the Nasdaq. The ratio was positive on the NYSE by a margin of 5.7 to 1. On the Nasdaq, the ratio was slightly lower but still an impressive 4.3 to 1. Although not as powerful as Tuesday’s distribution day, Thursday’s buying was significant.

As anticipated, ETFs that exhibited the most strength during the selloff were quick to recover yesterday. ETFs showing the most relative strength include oil services/related, emerging markets, energy and biotechs. Weakness was evident with bonds, homebuilders and regional banks. European market ETFs also appear to be weakening.

The iShares Nasdaq Biotechnology ETF (IBB), performed well during the recent carnage. In fact, during the height of the selling frenzy on Tuesday, IBB barely broke below the five day trading range. Further, volume was decreasing during the selloff and has been increasing over the past two days. A rally above yesterday’s high provides a possible buy entry for this ETF. We will send an alert should we decide to enter IBB

In the event the market is met with more selling pressure, the ProShares UltraShort Real Estate ETF (SRS), is poised to break its downtrend. This is a countertrend play. As such, should we decide to enter this setup it would be as a short term scalp. SRS is showing all of the signs of a trend reversal. Over the past two weeks, this ETF has seen a spike in accumulation volume. The big volume days have resulted in significant price advances. SRS rallied through the 20-day and 50-day MAs and briefly probed above the downtrend line. Over the past two sessions SRS has retraced its recent advance on very light volume. Today SRS gapped down, but held support at the 50-day MA and closed at the highs of the trading range. A volume fueled rally above the two day high provides a potential buy trigger for SRS. Note the resistance levels at $24.00 and $26.00.

The SPDR S&P Oil & Gas Equipment & Services ETF (XES) has demonstrated great resiliency during the recent downturn. Despite the heavy selling pressure XES held its 20-day EMA. Further, XES began rallying on huge volume a day before the broad market reversal. Due to the “whipsaw” action in both the market and XES, we are not yet inclined to make it an official setup.

The market recovered nicely today, but volatility and the accompanying price reversals suggest a cautious approach to trading. A period of consolidation would be healthy before another advance.

Today’s Watchlist:

There are no new official setups this morning. We will send an Intraday Alert if anything catches our eye while trading.

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 at this time.

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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader