Head and shoulders short setup in (RKH)


For a second consecutive day stocks finished down but well off the session lows. However, trade was heavy on a down day in the market. The Nasdaq ended the day down 1.3%. Both the Dow Jones Industrial Average and the S&P 500 slid 1.1% in Tuesday’s action. The small-cap Russell 2000 shed 0.9%, while the S&P MidCap 400 put in the best showing, as it fell 0.7% on the day.

Market internals were negative but somewhat tempered by the fact that stocks finished well above the session lows. Still, gap downs of the magnitude seen in yesterday’s session are generally not a healthy sign for bulls. Volume was up sharply across the board. Turnover increased on both the Nasdaq and the NYSE by 33%. Advancing volume fared poorly across both indices. Down volume overwhelmed up volume by a ratio of 4.7 to 1 on the NYSE and 4.2 to 1 on the Nasdaq.

The Regional Bank HOLDRS ETF (RKH) recently formed a head and shoulders like reversal pattern. Yesterday RKH gapped down below the neckline, reversed and then rallied back into the neckline. A light volume move toward the two day high of $87.17 could provide a possible shorting opportunity for this ETF. Should this technical pattern hold true to form, the projected decline for RKH would be a move back to the 200-day MA. We will be monitoring RKH intraday for a potential short setup.

The iShares Dow Jones US Telecom Sector ETF (IYZ) lost support yesterday but rallied off the session lows to close at the newly formed resistance level near $22.70. An overcut of this key mark could provide a shorting opportunity in IYZ.

The market demonstrated signs of resiliency on Tuesday but it would be a stretch to consider the overall action as healthy for stocks. As we stated in yesterday’s newsletter, we will be monitoring the market for intraday setups as opposed to pre-determined entries.

Today’s Watchlist:

There are no new official setups for today. As always, we will promptly send an Intraday Alert if any new trades are made.

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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  • Per our gap rules, we did not enter SMH on the open, as it gapped down 1% below its trigger price. Per intraday alert, we canceled the setup. We will continue to monitor the action for a lower-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