ETFs and market commentary:
Stocks ended the session lower as trade surged. All five major indices closed in the red with the small-cap Russell 2000 leading the decline. By the closing bell the Russell had shed 1.6% and is now in danger of losing a critical support at 811. The Nasdaq shed 0.7%, while the S&P MidCap 400 slid 0.6%. Large cap issues fared slightly better as the S&P 500 and the DJIA dropped 0.5% and 0.4% respectively. The precious metal, gold mining, semiconductor and telecommunications sectors took a beating yesterday, while home construction and water utilities showed relative strength.
Market internals were markedly bearish yesterday. Volume spiked by 18.5% on the Nasdaq and 26.7% on the NYSE. Declining volume overpowered advancing volume by a factor of 2.5 to 1 on both exchanges. Yesterday was a definitive distribution day on both the NYSE and the Nasdaq. The high volume suggests that institutional investors were actively selling.
The Russell 2000 Index ($RUT) is in danger of losing support at 811. If the Russell cannot hold support at this mark, the next significant support level is near 785. Tomorrow is an important day for the small-cap index, as it will likely tell us whether or not we will see a more protracted move lower in the broad market. If the Russell holds up, it may just take the market a couple of days to stabilize before moving higher. If the Russell loses support then we wouldn’t be surprised to see a three to five percent correction in the broad market.
If the Russell 2000 fails to hold support, by extension, the Direxion Small Cap Bear 3x Shares ETF (TZA) would provide a possible buying opportunity. Yesterday, on a big spike in volume, TZA rallied and closed above its 20-day EMA for the first time since December 19, 2011. If this inverse ETF can clear the February 15th high of $19.62, it could provide a short term buying opportunity.
In a violent morning selloff, IYM hit its stop and we exited the position. We also sold our position in IAU despite the fact that it didn’t hit its stop. We didn’t like the volatile price action in gold and decided it was best to go to cash. Although it did not perform particularly well, we remain in PPH as it has significant support just below. Yesterday was not a good day for Wall Street but it is by no means a reason to become bearish on the market. If the market were to compile 5 or 6 distribution days over a 20-trading day period, then that would be cause for concern. However, in the short run, it is probably best to remain mostly in cash until we get a better feel for how the market will react to yesterday’s sell off. Nonetheless, if quality setups develop, we will continue to trade them accordingly.
Today’s ETF Watchlist:
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 DailySubscriber Guide for important, automatic rules on trigger and stop prices
Having trouble seeing the position summary graphic above? Click here to view it directly on your Internet browser instead.
Notes:
- Per intraday alert, sold IAU ahead of the stop. IYM triggered the stop and we are out.
- 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 [email protected] if not already set up for this value-added feature we provide to subscribers.
Yesterday’s heavy volume selloff qualified as a distribution day for the Nasdaq Composite, which now has three distribution days in the past ten sessions. While we are not bearish on the market, the major averages are in need of some rest.
We removed all stocks from the buy watchlist for now. We may decide to run tighter stops and or set break-even stops on winners depending on how the market and our stocks react to yesterday’s selling. The list below explains why we are taking a short break from new entries:
- Our buy entries have not followed through (this is the most important reason of all). Even those with decent success out of the gate like GBX, N, and CONN have given back the majority of gains the past few days.
- Recent distribution in the Nasdaq and S&P 500. Stocks are being sold into strength.
- The broad market averages are quite extended and due for a pullback.
- The small cap Russell 2000 and Midcap S&P 400 have been consolidating for a few weeks now. These averages need to hold up and eventually breakout if we are going to see our type of stocks outperform the market.
Note: Due to the weak closing action in CELG, we will NOT be using the 5-minute rule if our stop triggers within the first five minutes of trading. Please sell the stock once the trigger is hit (do not wait 5-minutes). If CELG gaps down below our stop on the open, then we will sell our position at market on the open (do not wait 5-minutes).
Today’s Stock Watchlist:
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 model account size. Changes to open positions since the previous report are listed in red text below.
Having trouble seeing the position summary graphic above? Click here to view it directly on your Internet browser instead.
Notes:
- Note the new stop price in LKQX.
Relative Strength Watchlist:
The 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. The list is comprised of the strongest 100 (or so) stocks in the market over the past six to 12 months. The scan is based on the following criteria and is updated every Monday:
- Stock is in a well defined uptrend, trading above both the 50-day and 200-day moving averages, with the 50-day moving average above the 200-day moving average (both moving averages should be in an uptrend as well).
- Today’s close is less than 20% off the 52-week high
- Close is greater than $5.
- Volume is greater than 200,000 shares per day (using a 50-day volume moving average).
Click here to view this week’s Relative Strength Watchlist in excel
Click here to view this week’s Relative Strength Watchlist as a text file