The Wagner Daily


Yesterday was quite a wild and erratic day that felt much like a roller coaster ride. Due to the terrorist bombing in Turkey a few hours before the open, yesterday began with an opening gap down near the previous day’s low. Buyers stepped in and caused the major indices to find support and subsequently rally to completely fill the gap. Each of the major indices rallied above their respective highs of the previous day, but the S&P futures ran into resistance and was unable to rally beyond its 50% retracement level that we discussed in yesterday’s newsletter. The 50% retracement level, which also converged with the 200-period moving average on the 15 minute chart, marked the exact level at which the S&P reversed and sold off sharply into the close. The afternoon selloff caused the indices to close at their lows of the day AND below their 50-day moving averages. The Nasdaq showed relative strength to the S&P 500 yesterday, but each of the major indices followed the same type of price action. Because this type of price action was so unusual, a chart of SPY (S&P 500 Index) is the best way to illustrate yesterday’s indecisive behavior:

As the chart above suggests, the bears had control with the opening gap down, the bulls took over for the morning session, but the bears came back into the close. It was clearly a day that required traders to be extremely nimble and ready to switch sides of the market. Once again, yesterday’s indecision can be blamed partly on the lack of total market volume, which came in at nearly the same levels as the previous day. When volume is light, it does not require much of a shift in the buying/selling ratio in order to reverse the market. Yesterday was a good example of why trading when volume is light can often be dangerous — reversals come quickly and easily.

In addition to the 50% Fibonacci retracement level, yesterday’s highs in both the S&P 500 and the Dow Jones Industrials also were marked by resistance of the 20-day moving averages. Like we mentioned in yesterday’s newsletter, the 20-day moving averages that were formerly support are now acting as overhead resistance, along with the lows of last week. Below is a daily chart of DIA (Dow Jones Industrials) that illustrates how yesterday’s high converged with the 20-day moving average:

When an index opens at its intraday low, rallies, but then sells off to close at its morning low, it forms a bearish candlestick pattern that is known as a “gravestone doji star.” This is what occurred with each of the major indices yesterday and this pattern can be seen by looking at yesterday’s candlestick in the DIA chart above.

Because each of the major indices once again closed below their 50-day moving averages and at their lows of the week, this would normally suggest a gap down and selloff today, which would have the potential to be substantial. However, the market has been doing a great job of surprising everyone this week, so it would not be a shock if the broad market rallied today instead. To further add to the volatility, monthly options expiration is today, which in itself usually increases the market’s erratic trading behavior, especially in the afternoon. Therefore, it is difficult to make any bold suggestions of which way the market will go today. If the indices break to new lows of the week and remain there for more than a few minutes, odds are good that it will trigger a wave of selling due to confirmation of breaking the 50-day MAs. However, until that happens, expect the roller coaster action to continue. On the upside, continue to use Fibonacci to predict resistance levels for the broad market. Yesterday’s newsletter clearly outlined these key levels to watch. Quite frankly, it is a dangerous time to trade the broad market right now, but you’ll be fine just as long as you use stops on either side of the market.

Today’s watch list:

Since MTG is already short positions in both DIA and SPY, we are not looking to enter any additional new trades today. Options expiration today may further add to the market’s recent volatility.

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 (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 Model

Closed Positions:

    MDY short (from Nov. 20) –
    shorted 100.26, covered 100.81, points = (0.55), net P/L = ($57)

Open Positions:

    DIA short (from Nov. 20) –
    shorted 96.71, stop at 97.80, unrealized points = + 0.17 unrealized P/L = + $34

    SPY short (from Nov. 20) –
    shorted 103.97, stop at 105.30, unrealized points = + 0.16 unrealized P/L = + $32

    EWJ long (1/2 position, averaged from Nov. 17 and 19) –
    bought 8.66 (avg.), stop at 7.90, unrealized points = (0.06), unrealized P/L = ($24)


We shorted MDY per yesterday’s newsletter, but we were quickly stopped out when the market reversed in the morning. Per intraday e-mail alert, we later shorted both SPY and DIA when they sold off in the afternoon and hit their sell stop orders.

Edited by Deron Wagner,
MTG Founder and President