Commentary:

Stocks sold off sharply on Tuesday as volume surged. All five major indices closed in the red, with the Nasdaq leading the carnage. The technology rich index plummeted 2.7% for the session. The S&P MidCap 400 and the small-cap Russell 2000 sank 2.4% and 2.5% respectively. The S&P 500 fared slightly better but still lost just over 2.0% yesterday. The blue chip Dow Jones Industrial Average was the only index to fall less than 2.0%, as it ended the day 1.4% lower.

Market internals were convincingly bearish on Tuesday. Volume was up across the board. Turnover on the Big Board skyrocketed 13%, while volume on the Nasdaq was higher by almost 7.0%. Declining volume overwhelmed advancing volume by a ratio of 11 to 1 on the NYSE and 19 to 1 on the Nasdaq. Tuesday was clearly a distribution day on Wall Street.

Yesterday, we entered the ProShares UltraShort MSCI Brazil ETF (BZQ) on a pull back into its 20-day EMA. On a powerful, high volume reversal day the odds were in our favor to take a position on the short side of the market. The setup in BZQ was particularly appealing because this ETF gapped up on strong volume, reversed and filled the gap on lighter volume and then rallied back above the opening gap to close near the high of the day. Yesterday’s price and volume action in BZQ resulted in a distinct reversal candle and should result in further upside.

The ProShares Short MSCI Emerging Markets ETF (EUM) gapped up and formed a significant reversal candle yesterday. After a sharp move it is not unusual for an ETF to consolidate for a few days and/or pull back to a former resistance level before advancing further. A retracement back to support (former resistance) near $32.00 may offer a buying opportunity for this inversely correlated ETF. An alternative entry could present itself above Tuesday’s high.

Tuesday’s reversal proved timely in light of our commentary in yesterday’s newsletter. We were reasonably confident that a big distribution day was near, but there was no way to know that we would see such a sharp reversal this proximate to our analysis. We anticipate further selling for several days, but by no means has the market reversed the primary trend. For the moment, short opportunities appear to be abundant, while most long setups have been nullified. Now that volatility is back in the game, caution is warranted particularly on the long side of the market.

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Today’s Watchlist:

There are no new official setups for today. We will send an Intraday Alert if any new trades are made.

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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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Notes:

• Per intraday alert, we added BZQ long and sold PALL ahead of the stop. Using our gap rules, URA stopped us out 15 cents below the 20-minute low.
• 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