Commentary:

All five major indices closed down on Wednesday. The session opened flat and stocks rallied until the 11:00 am reversal period. The market spent the remainder of the day in a stair step descent. The S&P 500 and the S&P MidCap 400 both shed 0.5% on the day. Following closely were the Nasdaq and the small-cap Russell 2000. Each dropped by 0.4%. The blue chip Dow Jones Industrial Average incurred the least damage, as it closed down by only 0.2% yesterday.

Market internals were moderately bearish yesterday. Wednesday brought a divergence in volume between the two indices. Volume on the NYSE spiked by an impressive 10%, while the Nasdaq saw a small decrease in turnover of 0.9%. However, declining volume was greater than advancing volume on both indices. On the NYSE down volume outpaced up volume by a factor of 3 to 1, while declining volume was greater than advancing volume on the Nasdaq by a ratio of 2 to 1.

The Market Vectors Brazil Small-Cap ETF (BRF), is now testing support at the neckline of a head and shoulders pattern for the fourth time in the past month. Each test has been on very high volume. A break below the November 16th low of $57.10 marks a possible short trigger for this ETF. It is important to be aware of the minor support level at $56.00 (see daily chart). This price level marks a key support level on the weekly chart of BRF (20-week EMA). If the neckline of this head and shoulders pattern is broken, a sharp bounce could occur at this level. A close below the 20-week EMA would be further confirmation that the head and shoulders pattern is valid, and increase the odds that the predicted target would be met.

The SPDR S&P China ETF (GXC), is under pressure at an important support level. Yesterday this ETF gapped down, undercut support and closed near the lows of the day. A volume charged drop below yesterday’s low of $76.53, offers a potential short entry trigger for GXC.

For several sessions now, the broad market has been casting mixed signals. A subtle bearish tone seems to be overhanging the market. Yet, all the major indices remain in an uptrend and the price action suggests consolidation. But leading ETFs appear to be losing relative strength and market internals have been poor. We are also seeing market laggards taking leadership roles (often a bearish signal). When mixed signals abound, it’s generally best to take a protective stance. This may include tightening stops, reducing position size and/or hedging with both long and short positions. Regardless, caution is warranted.

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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:

• 
  No changes to our open positions at this time.
  
  
• 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