market timing model:

sell

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:

• XLY short setup triggered. We are closing XLY at market on the open.

stock position notes:

• DKS short entry triggered. We are closing DKS at market on the open.
• CRM hit its target and we closed the position for a 1% gain.

ETF and broad market commentary:

Stocks closed lower yesterday but near session highs. After a dismal start, stocks found a bid at the 11:30 reversal period and rallied for the remainder of the day. The small-cap Russell 2000 had the best day, as it closed flat on the session. Both the Dow Jones Industrial Average and the S&P 500 lost 0.2%, while the S&P MidCap 400 and the Nasdaq slid 0.3% and 0.4% respectively.

Technically speaking, market internals provided a bearish signal but deeper examination suggests that yesterday was actually an accumulation day in the market. Volume skyrocketed by 29.1% on the Nasdaq and 26.6% on the S&P 500. Declining volume edged out advancing volume on the Nasdaq by a factor of 1.7 to 1 and on the NYSE by a factor of 1.2 to 1. However, what’s most important in evaluating whether a market is in accumulation or distribution is the intraday price action. The fact that all of the major indices reversed sharply off of session lows on a significant spike in volume, speaks to institutional accumulation and not distribution. Based on this analysis, we would classify yesterday as an accumulation day for the broad market.

XLY hit its trigger yesterday and we entered the trade. However, we do not like the fact that XLY formed a reversal candle on higher volume, so we are exiting the position at market on the open. Market bears and market bulls have been in a knife fight over the past two weeks. Since the market bottomed on May 18th, we have seen three accumulation days and one distribution day. Still, price action has been unimpressive as the market has struggled to find higher ground. Given the indecisiveness in the market we are inclined to remain on the sidelines until a definitive move occurs.

stock commentary:

 

We covered CRM for a strong +1% gain in the portfolio yesterday, as it traded through the target price of 135.20. For those who are setting limit orders to exit shorts, please, if possible use discretionary limit orders. A discretionary order will allow you to exit a position with a wider range if the target is reached. For example, if the target on a short trade is 135.20, then a discretionary limit order could be placed to allow the execution to be 30 cents higher (it could be any number). So a 30 cent limit would mean that once the 135.20 price is hit the order is filled if the asking price is less than or equal to 135.50. For those who are unable to set these types of orders we suggest you raise the target price a bit higher to ensure a fill.

We plan to cover DKS at market on Friday’s open due to yesterday’s strong reversal action in the broad market averages. We’d rather take a small loss and wait for a better reward to risk entry on a bounce.

Our market timing model remains on a sell signal; however, a powerful one day advance on higher volume in a major average would shift the model in to buy mode. Although we do not have a buy signal in place, we plan to test the water with a small position in VVUS. Trade details can be found on today’s watchlist above. We only have about $160 of risk on the trade, which is about 1/3 of max risk ($500). Taking on one or two longs with very small size prior to a buy signal is fine, as long we respect risk. There simply is no reason to get heavy in the market until there is a clear buy signal.

 

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.