market timing model:
SELL – Signal generated on the close of July 10 (click here for more details)
today’s watchlist (potential trade entries):
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.
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ETF position notes:
- Sold UNG to lock in a quick $400 gain.
stock position notes:
- Closing LNKD at market on the open.
ETF and broad market commentary:
Stocks slumped for a third consecutive time yesterday, as volume climbed. All five major indices closed well in the red and in the lower half of their respective trading ranges. The small-cap Russell 2000 and the S&P MidCap 400 both closed below support of their 200-day moving averages, and both close lower by 1.4%. The Nasdaq and the S&P 500 both slid 0.9%. However, in afterhours trading, AAPL sunk almost 6%, bringing the Nasdaq futures down with it. The Dow Jones Industrial Average ended the day down 0.8%.
Internals were bearish on Tuesday. Volume rose on the Nasdaq by almost 10.0% and on the NYSE by 6.2%. Declining volume overpowered advancing volume by 3.7 to 1 on the NYSE and by 3.0 to 1 on the Nasdaq. Higher volume is a sign that institutions were actively selling yesterday. Based on the combination of both price and volume action, we would label yesterday as a distribution day on both exchanges.
After three days of selling, the broad market is now at the lower trend line of the trend channel we originally discussed in the July 10th issue of The Wagner Daily. In that issue we stated that, “the price action in (both QQQ & SPY) has been contained by a tight trend channel (Red lines) since the June 4th swing lows. We further commented that “trend channels provide an excellent gauge for determining support and resistance levels.” (See July 10th charts of QQQ & SPY below). Since that time, both QQQ and SPY have continued to find resistance near the top line of the trend channel, and support at the bottom line of the trend channel.
Notice that yesterday, QQQ tested and held support of both its 50-day MA and the lower trendline (red). If QQQ breaks below the two day low, its next significant support levels are the 200-day MA ($61.50) and the June 4th swing low ($60.00). Above the two day high, QQQ should find resistance at the long term downtrend line (blue line $64.50) and the July 19th high of $65.31.
Although it is showing slightly more relative strength than the QQQ, the SPY is exhibiting similar price action to the tech-rich index. The SPY also undercut its 50-day MA and the lower trend line (red) before regaining support of these key marks. Below yesterday’s low SPY has a minor support level at the July 12th swing low of $132.60. After that, the next major support is between $131.70 and $130.85 (200-day MA and the June 25th swing low). Below these levels, the June 4th low of $127.14 is the next key mark. All significant resistance levels for SPY are highlighted in light blue.
As planned, we exited our long position in UNG at the open yesterday, for a gain of over 7.0%. As of this writing, the Nasdaq Futures are trading about one percent lower. Given the afterhours move in AAPL, it appears likely that the market will gap down at the open on Wednesday. Although the broad market still has several key support levels just below, market conditions continue to erode. If leadership stocks like AAPL continue to take a beating, and are unable to quickly recover, the June 4th low could soon be retested. We will be watching that mark carefully since, losing support at this level, could result in a major move lower.
Tuesday’s distribution combined with AAPL’s ugly reaction to earnings appear to be the nail in the coffin for the bulls, especially considering that leadership stocks have taken a beating the past week and a half. We plan on closing out the remaining half positions of LNKD at market on the open.
We have two new short setups on today’s watchlist in case the market is unable to recover and sells off sharply over the next week or two. Please remember that if a stock opens more than 1.3% below the trigger the setup is to be cancelled.
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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.