Commentary:

Stocks began the day on a promising note but faded into the close. By the closing bell the major indices were mixed. The S&P MidCap 400, small-cap Russell 2000 and Nasdaq shed 0.3%, 0.2% and 0.2% respectively. The S&P 500 closed up by 0.1% while the Dow Jones Industrial Average ended the day flat.

Market internals ended the day mixed. Volume fell by 10.7% on the NYSE and 6.7% on the Nasdaq. Declining volume continued its command over advancing volume on Monday. The spread ratio ended the session in favor of declining volume by a ratio of 1.1 to 1 on the NYSE and 2 to 1 on the Nasdaq. The combination of mixed price action and mixed internals points to a lack of institutional involvement in Monday’s session.

Our open short position in TUR acted well yesterday as it gapped up in the morning but sold off for most of the session. By the closing bell TUR was trading in the lower third of the day’s range. A move below Monday’s low of $61.75 will likely attract a flood of short selling activity.

Yesterday the Nasdaq Composite ($COMPX) hit a milestone as it touched its 200-day moving average for the first time since September 1, 2010. Rarely will an index lose support of its 200-day MA without first testing this key mark several times. Consequently, we anticipate that the Nasdaq will undercut the 200-day MA sometime over the next 2 or 3 sessions and then move higher for several days. Should the market bounce, we will be looking for ETFs that are exhibiting relative weakness during the rally as they should present the best shorting opportunities. We do however suggest caution on the short side of the market over the next several days. As long as the Nasdaq holds the 200-day MA and its two year uptrend line, the past 9 days of carnage will only be considered a market correction. However, if the Nasdaq, DJIA and S&P 500 all lose support of their 200-day moving averages, the market will likely undergo a severe trend reversal.

The iShares All Peru Capped Index (EPU) has been consolidating near resistance of a recently formed gap, its declining 20-day EMA and declining 50-day MA. EPU could offer a shorting opportunity with a rally into these key moving averages or a move below the three day low of $40.27. We will be closely monitoring this ETF for a possible short entry.

Although the market has been showing subtle signs of recovering, every bounce has been met with resistance. For the moment, buyers do not appear willing to enter the market. Given the negative overtone in the market the question likely becomes will we even see a bounce before the broad market (S&P 500) tests the 200-day MA? Nonetheless, we are not interested in taking on new short positions after nine straight days of selling pressure.

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Today’s Watchlist:

There are no new official setups this morning. 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:

• There were no changes made to our TUR short position.
• 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