The Wagner Daily


After beginning the day with a Retail Sales report that came in well below expectations, the broad market sold off sharply during the first half of last Friday’s trading session. At their intraday lows, which were set during the first hour of trading, the major indices were trading approximately 1% lower on the day. The pivotal lows of September 10 were also violated during the morning session, which caused volume to surge in the morning. All these factors put the broad market in danger of having its third bearish “distribution day” within a week, which would have been very negative for the bulls. However, despite all these factors, the buyers eventually returned and the broad market rebounded sharply during the final two hours of trading. Each of the major indices completely erased their morning losses and each closed slightly positive on the day. The Nasdaq once again showed the most relative strength because, unlike the S&P 500 and the Dow Jones Industrial Average, the Nasdaq actually closed above its previous day’s high.

Although the reversal on Friday afternoon was impressive and surprised many traders, volume on both the NYSE and Nasdaq ended slightly lower than the previous day. This indicates that the buying volume on Friday afternoon was proportionately lower than the selling volume in the morning. If you are bullish, you would ideally like to have seen higher volume than the previous day to match the reversal and higher closing prices. In other words, the volume did not exactly support the But, since volume did not close higher, we cannot define Friday as a technical “accumulation day.” Based purely on volume, the picture remains relatively bearish in the short-term. However, Friday afternoon’s rally caused the major indices to break above resistance of the upper channel of a downtrend that had been in place since the highs of September 8. The 15-minute chart of SPY (S&P 500 Index) below illustrates how Friday’s reversal broke resistance of the 5-day downtrend line after initially breaking the September 10 low:

Not only did the S&P 500 break above resistance of its hourly downtrend line, but both the Dow Jones and Nasdaq Composite did as well. While the Dow showed the most relative weakness and barely closed positive on the day, the Nasdaq showed the most relative strength and closed above resistance of both its 5-day downtrend line AND the previous day’s high. Unlike SPY and DIA, QQQ also never traded below its September 10 lows. The chart of QQQ (Nasdaq 100 Index) below illustrates this:

It is also interesting to note that the Dow, S&P 500, and the Nasdaq each tested and bounced off support of their respective 20-day moving averages on Friday. As we mentioned last week, the 20-day moving average is a key support level to watch when an index corrects because it is often the first line of defense that provides support to an uptrend. SPY touched its 20-day moving average for the first time since August 26, which was also a level that acted as a springboard for the S&P to set new highs. DIA (Dow Jones Industrial Average) tested and found support at its 20-day moving average for the third consecutive day, while QQQ bouned off this level for the second consecutive day. Needless to say, the 20-day MA is the key support level to watch as we enter the new week. Although the volume patterns remain bearish, the 20-day MA has been attracting buyers. If the 20-day MA remains intact for each of the major indices, you need to be very careful and use tight stops on the short side. However, if any of the major indices actually CLOSE below their 20-day MAs, the risk/reward of being short will be much more positive.

Overall, the market is giving us too many mixed signals to take an aggressive position in either direction. The bulls can rightfully argue that the 20-day moving averages are still intact and buyers keep propping up the market. The bears can equally argue that the recent shift to a pattern of lighter volume on the up days and higher volume on the down days will continue acting as a weight on the market. As such, we feel most comfortable maintaining a neutral stance for now until we see how the next several days play out. This is a good time to reduce your share size on all trades, both long and short. More importantly, make sure you honor your stops and don’t become too fixed to an opinion. The market will do whatever it wants to, whether it makes sense to you or not. Only naive traders will argue with it!

Today’s watch list:

During my hours of scanning, I came across no clear ETF trade setups that offered a solidly positive risk/reward ratio. While there are a few plays that might work out on the long side, I feel more comfortable seeing if the market follows through on Friday’s reversal before jumping in with new trades here. Listing trade setups I am not excited about would be a dis-service to our clients. As such, there are no “official” plays today. Let’s allow the market to determine which way it heads at this crossroad.

Daily Reality Report:

Below is Morpheus Trading Group’s daily
performance report of closed trades and an update on all open positions from
The Wagner Daily (ETF Intraday Real-Time Room trades are reported
separately in The Wagner Weekly). Net P/L figures are based on the
quantity of shares represented in the MTG Position Sizing

Closed Positions:

    DIA short (from Sept. 10) –
    shorted 94.80, covered 94.88, points = (0.08), net P/L = ($22)

    HHH short (from Sept. 11) –
    shorted 41.79, covered 42.19, points = (0.40), net P/L = ($86)

    IWM short (from Sept. 12) –
    shorted 100.71, covered 101.37, points = (0.66), net P/L = ($69)

Open Positions:



All open positions hit their trailing stops when the broad market reversed on Friday afternoon. We were flat over the weekend.

Click here for
a detailed explanation of how daily trade performance is calculated.

Click here for a detailed
cumulative report of MTG’s trading performance (updated weekly)

Glossary and Notes:

Remember that opening gaps that cause stocks
to trigger immediately on the open carry a higher degree of risk because the
gaps (both up and down) often do not hold. Use caution if trading stocks with
large opening gaps.

Trigger = Exact price that stock must trade
through before I will enter the trade. If a long position, I will only enter the
stock if it trades at the trigger price or higher. For a short position, I will
only enter the stock if it trades at the trigger price or lower. It is really
important to only enter the position if the trigger price is hit, otherwise the
trade becomes riskier.

Target = The anticipated price I am
expecting the stock to go to. However, this does not mean that I will
always hold the stock to that price. If conditions warrant, I will sometimes
take profits before that price, in which case I will notify you of the

Stop = The price at which I will have a physical stop
market order set. As a position becomes profitable, this stop price will often
be adjusted to lock in profits. Again, you will always be notified of such
changes in the next daily report or intraday if you subscribe to intraday

SOH = Sit On Hands (Don’t Make Trades)

Closed P&L
under Deron’s Report Card is based on the actual price I closed my trade at, not
just the theoretical target or stop price listed for each stock. Open P&L is
based on the closing prices of the most recent trading day.

otherwise noted, average holding time is 1 to 3 days once a position is
triggered. Updates on open positions are provided daily.

Yours in success,

Deron M. Wagner