(EWL) pulling back into support on the weekly chart


Tuesday’s session saw all major indices decline sharply on big volume. At the open, stocks gapped down, sold off until 11:30 am, and spent the remainder of the session consolidating at the lows. Over 95% of all stocks on the S&P 500 closed lower on Tuesday. The small-cap Russell 2000 was hit the hardest, as it fell 2% yesterday. Close behind were the S&P MidCap 400 and the Nasdaq. Each plummeted 1.8%. The Dow Jones Industrial Average and the S&P 500 both shed 1.6% by the close. Selling throughout the day was heavy.

Volume increased dramatically in Tuesday’s session. Nasdaq turnover jumped 19%, while NYSE volume increased by an astounding 51%. Declining volume decidedly outpaced advancing volume by a ratio of 13.3 to 1 on the NYSE, and 7.8 to 1 on the Nasdaq. Tuesday’s trading clearly brought distribution to the markets. Institutions sold heavily from the opening bell into the close.

We have been stating for several weeks there were converging signs of a market reversal. Given the sharp selloff yesterday, it is wise to take a step back from the market. Based on our trading methodology, during sudden market reversals it is not uncommon for the majority setups to be nullified. Further, the combination of options expiration week and increased volatility, suggest that the most prudent course of action is to carefully evaluate before rushing into trades. The markets have to be given time to “settle in” and stabilize. Because of the relentless selling pressure, much of the leadership is being rung out of the market. As a rule, we don’t trade against the trend, but during sharp counter trend moves, reversal trades do provide some short term opportunity.

During the frenzy of a sharp round of selling, it is easy to get caught up in the emotion of the moment. Numerous gaps in a short period of time can result in confusion as to the next level of support. In the midst of broad based selling, it often feels like there are no support levels. This is particularly true when viewing the market solely through the lens of the daily chart. During significant corrections, evaluating the market from a different time period can be very useful in sorting out where things are headed. It helps provide clarity to the “whipsaw” action on the daily timeframe. Below, are the daily and weekly charts of the iShares MSCI Switzerland Index (EWL). The comparison of this ETF across both time periods offers a good example of the usefulness of this technique.

Although the evaluation of multiple timeframes can provide perspective, it is not recommended to use this analysis to ignore stops. Further, during severe market moves (up or down) existing support and resistance levels can quickly be breached.

Despite the heavy selling, the uptrend remains intact. Until the trend is broken, we will continue to scan for trades of strong ETFs pulling back into support.

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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  • We removed AMJ from the watchlist. We will continue to monitor the price action for a low-risk entry point.

  • 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.

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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader