Commentary:
The stock market’s attempted bounce that began on March 4 turned out to be rather short-lived, as the major indices sliced below their recent lows. Unlike the previous session, yesterday was a steadily trending day. Stocks gapped lower on the open, then built on their opening losses throughout the rest of the day. The Dow Jones Industrial Average plunged 1.8%, the S&P 500 2.2%, and the Nasdaq Composite 2.3%. Small-caps suffered the most, evidenced by the 3.1% loss in the Russell 2000 Index. The S&P Midcap 400 similarly shed 2.8%. The broad market was a bit choppy during the final hour, but the main stock market indexes eventually settled at their dead lows.
Total volume in the NYSE ticked 2% lower, while volume in the Nasdaq was 3% lighter than the previous day’s level. Turnover was roughly on par with Wednesday’s levels, but market internals were about as nasty as they get. Declining volume in the NYSE trounced advancing volume by a margin of approximately 20 to 1. Furthermore, 2,800 stocks in the NYSE lost ground, while just 350 climbed. These numbers indicate just how broad-based the sell-off was. Even strong sectors such as commodities, miners, and energy were not immune to yesterday’s selling spree.
In yesterday’s Wagner Daily, we pointed out the bearish chart patterns in the Retail and Real Estate sectors. Both sector indexes broke down below their horizontal bases of support yesterday, with the bottom falling out of real estate. The DJ U.S. Real Estate Index ($DJUSRE) swooned more than 4%. As per our pre-market plan, we bought the inversely correlated UltraShort Real Estate ProShares (SRS) when it broke out above the high of its five-week range. By day’s end, SRS had zoomed nearly 11 points higher. We’re presently showing an unrealized gain of more than 5 points since our entry yesterday morning. The breakout above the range was of textbook quality, complete with a close at its best level of the day, a steady intraday trend, and higher volume by day’s end:
Year-to-date, the S&P 500 has already shed 11.2%. However, the performance of our ETF trades in The Wagner Daily has actually been quite strong. After having compiled our February stats yesterday, we noticed the model account is on track for its most profitable quarter ever. Presently, it is already showing a net gain of 21.7% in the first two months of the year. Upon reflection of the reasons behind the gains, we decided to share some general strategies that have been working well for us in this challenging environment.
When I experienced my first bear market as a professional trader back in the year 2000, I was admittedly a bit naive. I logically assumed that profiting in a bear market would be no more difficult than profiting in a bull market. I only had to sell short stocks and ETFs instead of buying them, right? Wrong! I quickly learned there were many differences in a bear market that required fine tuning of my strategy in order to profit. Below is a summary of what I learned in the years that followed, which have been the keys to our strong profitability in recent months. If you’re struggling a bit, we hope this will be of assistance to your trading and investing operations:
After Tuesday’s late-day bullish reversal, we said the following morning, “If this were a bull market, the “hammer” candlestick patterns that formed on the daily charts of the major indices would probably lead to further gains in the near-term. But, as you may have noticed, we’re in a bear market. In recent months, bullish patterns have fizzled out a majority of the time, so we’re hesitant to predict follow-through gains from yesterday’s bullish reversal.” Unfortunately for many investors, those words rang true. Stocks managed a half-hearted rally on Wednesday, but gave it all back and tumbled down to their March 4 lows yesterday.
As anticipated, the S&P 500 joined the Nasdaq by setting a new 52-week closing low yesterday. The Dow violated its prior closing low from February, but is still a few points above its January low. With two of the “big three” stock market indexes at fresh 52-week lows, the odds clearly favor the short side of the market, but don’t get too cocky. As explained above, just a few well-placed positions can yield solid profits with minimal risk. Long is wrong, shorts are better, and cash is king. We’re content with our two bearish positions in the S&P 500 and Real Estate sectors.
Today’s Watchlist:
There are no new setups for today.
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:
SDS long (300 shares from March 6 entry) – bought 65.80, stop 66.64, no specific target (trailing tight stop), unrealized points = + 1.32, unrealized P/L = + $396
Closed positions (since last report):
Current equity exposure ($100,000 max. buying power):
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…
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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.…