Important Trading Lessons ($YANG)

market timing model: 

SELL – Signal generated on the close of July 10 (click here for more details)

today’s watchlist (potential trade entries):

today's watchlist

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 red 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:

  • No trades were made.

stock position notes:

  • No trades were made.

ETF and broad market commentary:

Stocks gapped up and raced higher on Thursday, on strong trade. Large cap stocks led the advance, as the Dow Jones Industrial Average and the S&P 500 both added a healthy 1.7%. The S&P MidCap 400 tacked on 1.5%, while the Nasdaq and small-cap Russell 2000 added 1.4% and 1.0% respectively. But for the small-cap Russell 2000, all of the major indices closed in the upper half of their intraday trading ranges. The Russell 2000 ended the session in the lower forty percent of its trading range. There is a clear divergence between blue chip stocks and higher beta issues. Both the Dow Jones Industrial Average and the S&P 500 both closed above their 20-day EMAs, while the Nasdaq, small-cap Russell 2000 and S&P MidCap 400 all remain below their 20-day moving averages. As of yesterday’s close, the DJIA was the only major index within one percent of its July 19th swing high.

Internals ended the day bullish across the board. Turnover rose on the Nasdaq by 10.4% and on the NYSE by 17.7%. Advancing volume eclipsed declining volume by a ratio of 4.1 to 1 on the NYSE and 2.2 to 1 on the Nasdaq. Based on the price and volume action on the Nasdaq and the NYSE, we would classify yesterday as an accumulation day on both exchanges.

We are keeping YANG on the watchlist, as the setup is still intact. Tomorrow’s price action will likely determine whether or not we cancel the setup. If we lose support of yesterday’s low, it is likely that the trade will be nullified, because UNG will either break down or a better setup will develop.

There are several important lessons to be learned from yesterday’s dramatic reversal. Although yesterday’s action was bullish, we had no desire to chase the move. The market moved unexpectedly and sharply higher, but over the past week, leadership has become fragmented in the market. There’s a big difference between buying stocks/ETFs in a market that reverses, when the majority of leadership stocks are showing tight price action, and buying stocks on a reversal when a large number of former leadership stocks have lost key support levels and/or their technical patterns have broken down. When a large number of leadership stocks break down, it generally takes several weeks to months for the market to “repair” itself for the next potential move higher. It is also important to note that excessive volatility is an earmark of bearish markets. Volatility is not friendly to swing trading.

The second important lesson that can be gleaned from yesterday’s price action is the importance of having a trading system with well defined rules. Yesterday was an excellent example of why it’s important to have specific setups and triggers. If you try to anticipate trades, and get long or short ahead of the trade, you can get wiped out as a trader. Had we attempted to go short the market prior to our setups triggering, we would have gotten killed yesterday. Anticipatory trading is a dangerous practice. However, if you are working from setups, then the trade generally won’t trigger if your timing is wrong. Triggers and stops are your protection from catastrophe if the trade doesn’t move in your favor. Trading is less about winning and more about playing the odds. The goal is to protect capital so you are around when the trend (up or down) turns in the favor of the setups. As a trader, it is important not to suffer from the illusion that you can squeeze profits out of every market. If we were heavily short coming into yesterday (because we played the anticipation game), we would be under a lot of pressure psychologically, and that’s when bad decisions are made. It’s hard for the market to place pressure on you and it’s hard to make a bad decision if you aren’t in the market.

It is also important to note that we don’t care which way the market moves. We have no bias to the long side or the short side. Also, we never ignore the timing model or our trading rules just because the market moves against us quickly. When you follow a trading plan, you will find that your mind is free of fear, greed, hope and regret, and will be more likely to make sound trading decisions.

stock commentary:

We canceled the GOOG and NKE setups but added TIBX to the watchlist. GOOG has taken a bit too long to trigger and may even attempt to probe higher. NKE traded above the reversal bar swing high so the setup is no longer valid. We look for TIBX to sell off below yesterday’s reversal candle, which is also below the 50 & 200-day MAs.


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 watchlist:

Our 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. This list is comprised of the strongest 100 (or so) stocks in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Watchlist can be downloaded by logging in to the Members Area of our web site.