Is the Market Ready to Bounce? ($DUG)

market timing model:


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:

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ETF position notes:

  • No trades were made.

stock position notes:

  • No trades were made.

ETF and broad market commentary:

Following Friday’s horrific performance, stocks ended Monday’s session mixed, on light trade. Stocks did however close well off session lows. The Nasdaq exhibited relative strength yesterday, as it was the only major index to close higher on the day. By the closing bell, the tech-rich index had tacked on 0.5%. Both the S&P 500 and the small-cap Russell 2000 closed flat on the day. The Dow Jones Industrial Average fell a modest 0.1%, while the S&P MidCap 400 lost 0.5% on the day.

For a second consecutive day, market internals were mixed. Volume fell by 14.0% on the NYSE and 11.0% on the Nasdaq. Declining volume modestly outpaced advancing volume by a factor of 1.8 to 1 on the NYSE. However, advancing volume narrowly outperformed declining volume on the Nasdaq. By the close, the spread ratio stood at a plus 1.1 to 1 on the Nasdaq.

Yesterday, on a spike in volume, the ProShares UltraShort Oil and Gas ETF (DUG) formed a distinct reversal candle and could offer a buying opportunity on a pullback into support near its 10-day and 20-day moving averages. We will be monitoring this ETF closely for a potential pullback buy entry. On a pullback buy entry, we look for an ETF to undercut a key moving average or support level, and form a reversal candle. The reversal candle then serves as the pivot for a possible trade entry. In this example, the potential long entry would occur on a move above the reversal candle.


Although the market recovered to close well off session lows, yesterday’s reversal was far from impressive. Volume was light, suggesting institutions were not actively participating in yesterday’s recovery. Still, all five major indices have now undercut their respective 200-day moving averages, and the market could reverse at any moment. We expect one more sharp capitulation day but it is not necessary for the market to reverse off the current levels. Even if the market does move lower from here, the potential reward is not significant enough to assume additional risk on the short side of the market.

stock commentary:

Our nightly scan work turned up very little in the way of actionable short setups, so we are forced to sit in cash and wait for low risk entry points to develop. I know sitting in cash is not exciting but trading isn’t about satisfying the need for action. Running a disciplined trading system is boring in that it is extremely repetitive. We run the same scans just about every night looking for the same setups year in and out with some tweaks in strategy along the way. Being patient is key right now as we want to avoid giving back last month’s profits by getting caught in a short squeeze.

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.