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 text below. Be sure to read theWagner Daily subscriber guide for important, automatic rules on trade entries and exits.
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ETF position notes:
- Per intraday alert, sold EPU for a small scratch gain.
- UGA triggered the stop and we are out.
stock position notes:
- No trades were made.
ETF and broad market commentary:
Tuesday was a brutal day for Wall Street, as stocks took a beating on heavy trade. All five major indices plunged 1.7% or more with higher beta issues leading the decline. By the closing bell both the S&P MidCap 400 and small-cap Russell 2000 had dropped a whopping 2.4%. The Nasdaq shed 1.8%, while both the S&P 500 and the DJIA slid 1.7%. Of the 107 sectors that we track only two finished in the green (Platinum precious metals and gold mining). Further, one hundred of the 107 sectors dropped 1.0% or more.
Market internals were decidedly bearish yesterday. Volume spiked by 45.0% on the Nasdaq and 40.0% on the NYSE. Declining volume overwhelmed advancing volume by a whopping 13.5 to 1 on the NYSE and 10.1 to 1 on the Nasdaq. The massive spike in volume points directly to institutional selling. Tuesday was a decisive distribution day across the board.
The ProShares UltraShort EURO (EUO) has been consolidating in a pennant like formation over the past three sessions. EUO offers two potential long entries. The first would be if EUO rallies above the three day high of $19.82. EUO could also offer a buying opportunity on a pullback and/or undercut of its 20-day and 50-day moving averages. We are monitoring this ETF closely for a possible long entry.
Over the past month, one of the weakest ETFs in the market has been the iShares MSCI Spain Index Fund (EWP). EWP began selling off in mid-March, well ahead of the recent market decline. Further, EWP has set a new swing low and new 52-week low with this latest round of selling. EWP offers a possible shorting opportunity on a bounce into resistance of its 20-day and 50-day moving averages.
We closed our long position in EPU yesterday due to market conditions, yielding a fractional gain. UGA hit its stop and we exited the trade. We remain long ERY which closed higher by 5% yesterday. The market is now clearly in distribution mode but is providing a short term oversold signal. However, it is common to remain in an oversold state for several days following an initial oversold reading. By no means are we looking to get long until market conditions improve. In the meantime, we will be looking for shorting opportunities as long as the market remains in distribution. In the initial phase of a selloff, we generally look to keep position size small until a clear trend reversal develops. There’s no way to discern at this moment whether or not we are in a trend reversal. Consequently, we are looking to stay mostly in cash.
Tuesday’s ugly selling action is precisely the reason why we go to cash when we get a clear sell signal from our market timing model. That is also why we have a “shoot first ask questions later” policy when it comes to getting out of open stock positions after a sell signal is generated, as we can always re-enter if the action improves.
Although there were a few buyable patterns in the market yesterday (such as RAX and MAKO), trying to go long when the market is in distribution mode is extremely difficult, that is why RAX and MAKO were not official plays. Risk management also goes out the door when the market is in distribution mode, as the price action tends to gap down more, which increases the odds that a trade will gap down below your stop and cost you more money than expected.
Our short-term plan is to remain in cash and wait for market conditions to settle down. We have been busy the past few weeks but now is the time to lay low and remain patient.
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.