Market may need a few weeks of rest ($SPY)

market timing model:

Confirmed Buy
– The timing model was upgraded to a confirmed buy on the close of January 22. However, the initial buy signal was generated on the close of December 31. (click here for more details)

today’s watchlist (potential trade entries):

$todays watchlist

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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 pink 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:

  • Sold all of $SEA and $EEM. Sold half of $FDN.

stock position notes:

  • All open positions were sold.

ETF, stock, and broad market commentary:

For the second day in a row, stocks sold off across the board on higher volume. Although the percent losses were not as bad as Wednesday, the S&P 500 did follow through to the downside for the first time in 2013. With turnover increasing on the both the Nasdaq and NYSE, the S&P 500 and Nasdaq have posted back to back distribution days. Whenever the distribution begins to cluster we take notice.

As far as the charts of the major averages go, the S&P 500, Russell 2k, and S&P 400 appear to be in decent shape. The same can not be said of the Nasdaq, which has taken a beating the past two sessions, and is closing in on the 50-day MA. The Nasdaq 100, which basically did not budge the entire rally is already below the 50-day MA.

Looking at the daily chart of the S&P 500 below, the price action may be headed for an undercut of the prior swing low around 1,494.


If/when the S&P bounces higher, how it reacts on the bounce will be very important. There is a cluster of resistance around the 1,515 to 1,520 area. Four sessions of stalling action created some overhead resistance around 1,520, while the 1,515 level represents a 50% fibo retracement using Thursday’s low. If the market registers another distribution day after a light volume bounce off the lows, then that could potentially be the nail in the coffin for the current rally. That being said, unless leadership stocks break down en masse, we would expect a normal pullback to or around the 50-day MA on the S&P 500.

We stopped out of $EWM, $SEA, and a half position of $FDN. We remain long $EWT, $EWS, $EWJ and $FDN. We have raised the stop levels on 3 of 4 open positions to minimize losses if they do not work out.

$EWS is still in great shape, but if it fails to hold the 50-day MA and breaks the pattern of higher swing lows within the base, then we will be forced out of the position.

$EWS bull pattern

On the stock side it was quite a busy day, as all open positions were either closed or stopped out on the open. This is not the way we plan it, but when the market produces an ugly reversal candle and our stocks also flash a warning sign we must react quickly.

A great example of this is our recent sell in $LL, which completely broke down on Thursday, giving back the entire advance from the 57.00 breakout level in one session.


Selling $LL on the close of candle (A) due to the bearish engulfing candle is fine. We felt that with earnings just around the corner and the market acting well that is was worth the risk to hold. After earnings, $LL gapped up on the open of candle (B) and broke above the high of candle (A), but failed to follow through. This was not the reaction to earnings we were looking for. Once $LL broke the morning low in the afternoon it was a clear sell signal. We issued a “close on the next day’s open” order in $LL in last night’s report, and as you can see the timing was right as the price action fell off a cliff the rest of the day.

The short-term plan is to lay low on Friday and see if any bullish patterns develop over the weekend. We may attempt to establish a position or two on Monday or Tuesday if any patterns catch our eye.

If you are just now subcribing to our newsletter or have been on board for a week or two, you have seen how we operate in buy mode with full exposure and several positions. If the market suffers one or two more distribution days, our timing model will most likely shift to sell mode. This means that there may not be as many trade ideas, as the market digests the recent rally. Please realize that in order to be a successful trader you do not have to trade every swing in the market, which is why we shy away from calling tops or bottoms (these trades are ego based, with little to no reason for entry). Sometimes cash is king!

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 combo watchlist:

Our Relative Strength Combo 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 stocks (technically and fundamentally) in the market over the past six to 12 months. The scan is updated every Sunday, and this week’s RS Combo Watchlist can be downloaded by logging in to the Members Area of our web site.


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