Commentary:
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
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Notes:
Edited by Deron Wagner,
MTG Founder and
Head Trader
market timing model: BUY Signal generated on close of Sept. 21 Market timing model is…
market timing model: BUY Signal generated on close of Sept. 21 On a buy signal.…
market timing model: BUY Signal generated on close of Sept. 21 On a buy signal.…
market timing model: BUY Signal generated on close of Sept. 21 On a buy signal.…
market timing model: BUY Signal generated on close of Sept. 21 On a buy signal.…
market timing model: BUY Signal generated on close of Sept. 21 On a buy signal.…