Is the Market Overextended? Time to Take Profits? (SPY) (QQQ)


Wall Street was smiling yesterday as stocks ripped higher and the Nasdaq claimed an 11 year high. All five major indices posted impressive gains with the small-cap Russell 2000 leading the march higher. The small cap index rallied 2.2%. Both the Nasdaq and the S&P MidCap 400 tacked on 1.6% while S&P 500 surged 1.5%. The Dow Jones Industrial Average couldn’t keep up with the hot pace of the other indices but still managed a 1.2% gain. Sectors showing the most strength included solar energy, real estate, software, internet, oil services, networking and banking. Precious metal, healthcare and pharmaceuticals all underperformed.

Internals ended the week on a bullish note. Volume surged by 12.4% on the Nasdaq and 13.2% on the NYSE. Advancing volume easily overpowered declining volume by 6.1 to 1 on the NYSE and 5.1 to 1 on the Nasdaq. The confluence of price action and market internals on Friday makes a clear case for institutional buying. Consequently, we see Friday as a clear sign of bullish accumulation for the broad market.

Given Friday’s strong breakout price action it is probably a good time to review key resistance levels. Last week we stated that we felt the market appeared likely to rally and overcut last summer’s highs. Below are charts of the Nasdaq, S&P 500 and DJIA. As you will notice, we are now at or near key resistance levels on all three indices. It is impressive that the Nasdaq set a fresh 11 year high on Friday but it is also important to note that none of the other major indices can make the same claim, and are still below key resistance. Since we are close to testing and/or overcutting key resistance levels we know it’s important to exercise caution and only take on the strongest potential long entries:

As we have been stating repeatedly over the past week, we are planning on selling our positions into strength. Last Friday, we followed this plan by selling both SOXL and IYZ, locking in solid gains of 11% and 4% respectively. We remain positioned in IYT and DVY, and still have PPH on the watchlist as a long candidate. There is little question that the market is quickly reaching severe near-term overbought levels, as are many ETFs. This is what is driving our desire to sell into strength. By no means are we suggesting that we’re bearish on the market; rather, the likelihood is growing that this phase of the bull market rally may be approaching a level that is unsustainable in the near-term.

Today’s Watchlist:


Shares = 300
Trigger = 74.04
Stop = 72.22
Target = new swing high
Dividend Date = n/a

Notes = We’ve been monitoring this trade for potential entry and it remains on our 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 Daily Subscriber Guide for important, automatic rules on trigger and stop prices

position summary

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  • Per intraday alert, sold SOXL into strength to lock in a 2% gain in the portfolio. Sold IYZ to lock in gains.

  • 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