Emerging Markets ETF Ready to Breakout?($EEM)

market timing model:

Confirmed Buy
– Signal generated on the close of January 22 (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist

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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 pink shaded cells below. Be sure to read the Wagner Daily subscriber guide for important, automatic rules on trade entries and exits.

open position summary

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closed positions:

open position summary

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ETF position notes:

  • $RSX add triggered. We are cancelling the $EWT add for now.

stock position notes:

  • $DGI and $LL buy entries triggered.

ETF, stock, and broad market commentary:

5-Minute Rule:

How to handle stocks/ETFs that trade through our buy stop within the first 5-minutes of trading

      : No buy stops go live until 5 minutes after the stock market opens. So if the price action trades through our buy stop within the first 5-minutes of trading we do nothing and simply wait for 5-minutes. At 9:35 we mark the 5-minute high and add 10 cents to the 5-minute high as the new official entry point. As long as the 5-minute high is not more than 1.3% above the original trigger point the setup is still valid. If the 5-minute high (not adding the 10 cents) is more than 1.3% above our trigger, the trade is automatically canceled.

How to handle a morning gap up above our trigger: If the morning gap up is more than 1.3% above our entry the trade is automatically canceled. If the gap up is less than or equal to 1.3% we wait for 5-minutes to pass and then set a buy stop 10 cents above the 5-minute high, provided that the 5-minute high is not more than 1.3% above the original trigger.

The 5-minute rule does not apply to buy limit orders, where we are looking to enter on weakness. But as with a buy stop order, if a stock/ETF opens more than 1.3% below our buy limit order the trade is automatically canceled.

Stocks turned in a round of mixed results yesterday, as the Dow Jones Industrial Average gained 0.3%, the Nasdaq Composite fell 0.7%, and the benchmark S&P 500 was flat. However, higher volume across the board means the Nasdaq suffered a “distribution day,” and price action of the S&P 500 was indicative of bearish “churning” (stealth institutional selling into strength). A big part of the blame was that shares of Apple ($AAPL), a heavily weighted component of the NASDAQ, plunged 12% yesterday. Nevertheless, the broad market fared relatively well considering the anchor effect of Apple. Although the Nasdaq failed the previous day’s breakout and closed at its intraday low, it was only the first confirmed “distribution day” the Nasdaq has suffered since its breakout in the beginning of the year.

Yesterday’s price and volume action produced the first true distribution day in the Nasdaq Composite since the big gap up. While we have seen a few weak distribution days since the gap up (price action closed well off the lows of the day), Thursday’s price action closed near the lows of the day.


One distribution day does not kill a rally. Although yesterday’s action in the Nasdaq could lead to a short-term pullback, we can not rule out the possibility of a strong recovery on Friday, as bull markets tend to close out the week in bullish fashion.

The Nasdaq 100, with the heavy weighting of $AAPL has been a complete laggard in 2013. Hopefully, the Nasdaq 100 ETF ($QQQ) can hold the 20-day EMA. If not, then we could see a test of the range lows around 66.00. Ideally, we would like to see all major averages moving together. $QQQ doesn’t have to lead the market higher, but we certainly do not want the action to break down below the 50 & 200-day MAs.


The S&P 500 ETF ($SPY) probed above the prior day’s high early but sold off through the afternoon, giving back most of the morning advance. Although the S&P closed in positive territory, the retreat off the highs of the day on heavier volume is known as churning, which is stealth selling into strength by institutions.

$SP 500

If the market does pull back in, we could see a shallow, 2-5 bar sell off that finds support somewhere around the 10-day moving average on the major indices, which would be a normal reaction in a strong bull market. A deeper selloff to the 20-day EMA is a less bullish scenario, which could indicate that the market may need more time to base out.

There are no new setups for today on the ETF side. We added to $RSX yesterday, while $EEM remains a potential buy setup that we are closely monitoring.

There are no new setups for today on the stock side.We established one new long position in $DGI yesterday, while adding to an existing position in $LL on a breakout. We raised the stop in $RYL and $LL. In $RYL, we continue to raise the stop to lock in as much of the advance as possible before earnings on 1/29. With $LL, the stop is now just below the 20 EMA on the full position.

If you are a new subscriber, please e-mail [email protected] with any questions regarding our trading strategy, money management, or how to make the most out of this report.

relative strength combo watchlist:

Our Relative Strength Combo 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 stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.


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