Support lines for major averages


Stocks gapped down and fell sharply on Tuesday, with the major indices posting their worst trading day in just over two months. The markets were met with considerable selling pressure throughout session. However, there was bounce in the last 30 minutes of trading that prevented the markets from closing at the lows of the day. Tuesday’s action resulted in the largest daily drop since early August. Of the major indices, the small-cap Russell 2000 exhibited the most weakness, as it plummeted 16.0 points, or 2.3%. The tech-rich Nasdaq and the S&P MidCap 400 both shed 1.8% on the day. The S&P 500 slipped 19 points, or 1.6%, while the Dow Jones Industrial Average dropped 165 points, or 1.5%. As touched upon in October 19th newsletter, we viewed Apple (AAPL) as a stock to, “keep an eye on”, as it could very well affect the direction of the broad market. It is noteworthy that, as AAPL lost its footing in the afternoon session, the broad market followed its lead. As we have been discussing for several weeks, the financial sector has exhibited relative weakness to the market. It’s not surprising that this sector also contributed to the selling pressure yesterday. By example, Bank of America tumbled 4.4% on the day.

Volume increased substantially on both the NYSE and the Nasdaq. NYSE turnover was up 28%, while the Nasdaq saw a 29% increase in volume. On the NYSE, declining volume significantly outpaced advancing volume by a ratio of 9 to 1. The ratio on the Nasdaq was somewhat better, as declining volume was higher than advancing volume by a factor of 6 to 1. The high volume in today’s selloff, indicates selling pressure by major institutions, and would therefore be labeled a distribution day. But, one or two distribution days within a period of a few weeks can typically be absorbed by a healthy market. However, we do need to be prepared for a significant correction if we exceed three or four distribution days in this time period.

As presented in yesterday’s commentary, “The sudden shift from one day to another tells us we are dealing with a market that is apparently becoming increasingly indecisive. In and of itself, this does not mean traders should suddenly abandon the long side of the market. However, a healthy degree of overall caution and alertness with one’s trading operations should be considered right now. “If you have not already done so, this is a good time to consider raising your protective stops on winning long positions, so that a nice profit can be secured in the event of a sudden reversal.” Today’s market action is in line with the aforementioned.

In the event we are entering a “market correction”, now is a good time to review the major indices for levels of support and resistance. Further, it is time to identify ETFs that have demonstrated relative strength to the market, and look to buy them on a pullback to support. Most of the emerging market ETFs are potentially good candidates as “pullback entries”. The charts below provide our analysis of support levels on the Dow Jones Industrial Average, S&P 500 and Nasdaq. We will be monitoring these levels carefully, as they provide the information needed to detect a possible market reversal.

Today’s Watchlist:

There are no new setups in the pre-market today. However, now that we have closed a few trades, we have freed up buying power for new opportunities. If any new trades are spotted during the day, we will send an Intraday Trade Alert with details.

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

    position summary

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  • No changes in open positions at this time.

  • We will be using the MTG Opening Gap Rules to manage our position in USO, as it is likely to open near our stop price. The new stop will be the actual stop price, or $.15 below the low of the first 20 minutes, whichever is lower. Although it no longer appears that USO is going to breakout, our stop was in the right place, below support of the lows of the range in the 20-day exponential moving average. This provided significant “wiggle room.”

  • 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 [email protected] if not already set up for this value-added feature we provide to subscribers.

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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader