Commentary:

Stocks fell sharply on Monday on mixed trade. The day ended with the DJIA, S&P 500 and Nasdaq all closing below their respective 200-day moving averages. Smaller cap issues led the decline as the S&P MidCap 400 and the small-cap Russell 2000 plunged 2.5% and 2.6% respectively. The S&P 500 also dropped 2.5% while the Dow Jones Industrial Average fell 2.3%. The Nasdaq put in the day’s best performance but still fell 1.9%.

Market internals were mixed on the Nasdq but bearish on the NYSE. Volume increased by 4.2% on the NYSE but fell on the Nasdaq by 1.9%. However, declining volume topped advancing volume across the board. By the closing bell the spread ratio stood at a negative 15.1 to 1 on the NYSE and minus 6.1 to 1 on the Nasdaq. We would classify Monday as a distribution day for the NYSE due to the higher volume and significantly higher ratio of declining volume. What is concerning about yesterday’s action is that it represents the second distribution day on the NYSE since this rally began in early October.

Yesterday, on increasing volume, the iShares US Real Estate Index ETF (IYR) formed a reversal candle as it overcut its 200-day MA. A move below the two day low of $56.93 could provide a shorting opportunity in this ETF. We will be monitoring this setup closely for a potential short entry.

The SPDR S&P Retail ETF (XRT) sold off on declining volume yesterday as it broke support of the two day low. Further retracement into support of the 20-day and 200-day moving averages could provide a buying opportunity in this ETF.

In yesterday’s newsletter we stated, “…we are of the opinion that the market may be approaching an overbought level. We also believe caution is now warranted on the long side of the market for the short run”. Those words proved to be accurate as the market tumbled sharply on the day. There’s nothing unhealthy about a market pullback but it’s never good when the market sells off on increasing volume. We generally don’t like to see more than four distribution days in a month and we now have two in the past five days on the NYSE and the S&P 500. If we have a follow through day to the downside on Tuesday then we’ll have to begin to seriously consider the possibility that the recent rally was nothing more than a bear market retracement. Time will tell.

---

Today’s Watchlist:

There are no new setups for today. As always, we will 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

Having trouble seeing the position summary graphic above?
Click here to view it directly on your Internet browser instead.

Notes:

• No trades were made.
• 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