Commentary:

All five major indices dropped sharply on Friday on mixed trade. Last week marked the fifth straight week that the S&P 500 finished in the red. Higher beta stocks took a beating as both the tech rich Nasdaq and small-cap Russell 200 fell 1.5% yesterday. The S&P MidCap 400 followed close behind as it shed 1.3% on the session. The S&P 500 and the Dow Jones Industrial Average sank by 1% and 0.8% respectively.

Internals ended the day mixed. Volume was fractionally higher on the Nasdaq but down 5% on the NYSE. However, declining volume dominated across the board. The ratio of declining volume to advancing volume ended the session at 3.9 to 1 on the Big Board and 5.8 to 1 on the Nasdaq. Because of the lighter volume we would not consider Friday to be a distribution day on either the Nasdaq or the NYSE.

Via an intraday alert we entered a long position in the ProShares UltraShort MidCap 400 (MZZ) yesterday. We like this trade because it is breaking out of a two month base on strong volume. For our subscribing members trade details are available in the open positions segment of the newsletter.

After several days of strong selling the S&P 500 index ($SPX.X) has lost support of its 10 month uptrend line. However the S&P is now trading near the key support level of 1294.70 (April 18th swing low). Generally speaking, previous swing lows will act as support in a selloff since they attracted buyers the last time the index reached that level. Further, this low is of particular importance to the S&P 500 as it now only undercuts a key psychological mare of 1300 but also would represent further confirmation that a correct or possible trend reversal is underway. One of the requirements for a correction/trend reversal is the establishment of a “lower, low” and a break below 1294.70 would meet this criteria. Nonetheless, it is not unusual for a market to bounce at key levels that have not yet been tested. It is also noteworthy that the next key support level below 1294.70 is at the 200-day MA which also coincides with long term trend line dating back to the start of the bull market rally in March of 2009. Should we break below the current levels, the 200-day MA could serve as a very formidable level of support.

The SPDR KBW Regional Bank ETF (KRE) may present an excellent shorting opportunity on a bounce into resistance. KRE has shown significant relative weakness since the broad market began rallying in March 2009. This weakness has carried over recently as KRE has lost support of its 20-day EMA, 50-day MA and 200-day MA well ahead of the market. A rally back into resistance somewhere near these key marks should provide a short entry trigger for KRE. We will be monitoring KRE for a possible entry point.

Friday’s selloff was broad based as most industry groups participated in the slide. With the S&P 500 losing ground for five weeks now, we will be inclined to take profits quickly in the event of a sharp gap down/selloff on Monday. Although our market bias is currently bearish, the duration of the current broad market selloff suggests profit taking into weakness is probably a prudent course of action.

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Today’s Watchlist:

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

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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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Notes:

• Per intraday alert, we bought MZZ. UUP and DBA both hit the protective stop and we are out.
• 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.
• For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader