The Wagner Daily


Despite the formation of encouraging bullish reversal patterns the previous day, the major indices got pummeled for the second time in three sessions, dashing the hopes of investors yesterday. The broad market gapped sharply lower on the open, for the third consecutive day, but this time the bulls failed to reverse the early weakness. After trending steadily lower throughout most of the day, stocks staged a rally attempt in the final ninety minutes of trading. However, enthusiasm fizzled out quickly, causing the main stock market indexes to cascade to fresh intraday lows into the closing bell. The Dow Jones Industrial Average nosedived 4.1%, the S&P 500 4.7%, and the Nasdaq Composite 4.9%. The small-cap Russell 2000 swooned 4.8%, as the S&P Midcap 400 lost 4.4%. Like the September 15 sell-off, all the major indices finished at their dead lows of the day.

Total volume in both the NYSE and Nasdaq was 4% lower than the previous day’s level. Though turnover eased slightly from Tuesday’s lofty levels, yesterday’s volume still marked one of the busiest days of the year. On September 15, market internals were among the worst levels in history. Yesterday’s readings were only fractionally better. Advancing volume in the NYSE trounced declining volume by more than 16 to 1. The Nasdaq adv/dec volume ratio was negative by “only” 6 to 1.

As investors aggressively sought out a place to hide, gold shot through the roof yesterday. Spot gold futures rocketed higher by $70 per ounce (9%), causing the associated precious metals ETFs to motor higher as well. After bouncing off its 11-month low just four days ago, the chart pattern of SPDR Gold Trust (GLD) came onto our radar screen as a potential reversal play. However, because of resistance of the 20-day moving average overhead, we were hoping it would form a multi-day base of support (consolidation) before moving higher. Instead, it took off on a parabolic trip yesterday. On the daily chart of GLD below, notice how it also blasted through resistance of its intermediate-term downtrend line. Rather than chasing an entry here, we’ll now be watching for a substantial pullback or price consolidation before buying GLD:

In yesterday’s Wagner Daily, we discussed the numerous reasons we felt the bullish reversal of September 16 coincided with market “capitulation” that would form a significant bottom. Obviously, the market quickly proved our assessment wrong, and we have no problem admitting such. Although technical analysis provides us with the facts needed to consistently put the odds of success in our favor, even the most reliable indicators will occasionally provide false signals. This is especially true in a news-driven environment.

Whenever our analysis of a particular situation is proven wrong, the first thing we do is look back at the facts available to us at the time. We then ask ourselves, “Given the available analysis we knew at that time, would we still make the same decision again, regardless of the actual outcome we now know?” If the answer to that question is “yes,” we know our analysis was correct, but the pattern simply didn’t follow-through. If, however, our retrospection uncovers flaws in our original analysis, we make a note to ourselves to correct that flaw whenever the same scenario arises in the future. Looking back, we still would still have answered “yes” to making the assessment of a possible capitulation on September 15. However, in hindsight, we probably should have given more credence to the copious amounts of news flying around that’s causing many technical patterns to simply fly out the window.

Violent moves in both directions on the major indices have made intraday gyrations of three or four percent the norm lately. But we feel the biggest negative with yesterday’s market action was not the four percent losses on the main stock market indexes. Rather, the greatest concern is that the S&P 500 blew through the 1,172 support level. Over the past several days, we’ve analyzed and illustrated how the 1,172 area should have acted as key support for the index; both the 50% Fibonacci retracement (from the October 2002 low to October 2007 high) and 14-year uptrend line converged around 1,172. Unless the S&P 500 suddenly snaps back to close above 1,172 today, it’s quite bearish that such a major area of support only provided a one-day bounce. We’ll be keeping our eye on that pivotal price level in the coming days. Curiously, as of the present pre-market futures indications, the S&P 500 is poised to open right at 1,172 today. Hmmm…

For those who are new to trading and/or this daily newsletter, you may be wondering why we have only presented you with a minimal number of ETF trade setups in recent weeks. In this regard, it’s crucial to understand that, although we would like to present more tradeable ETF setups, sometimes the best offense is a good defense. The recent meltdown in the brokerage industry has the overall market on pins and needles, as evidenced by the extreme volatility this month. Due to the wild price action, we’ve intentionally been playing it safe by only entering a minimal number of trades, while primary remaining mostly in a defensive position known as cash (aka “capital preservation mode”).

On September 11, we closed our bearish position in UltraShort Basic Materials ProShares (SMN) for a nice profit, but we have not entered any short positions since then. This is because we’re aware of a few major differences between bull and bear markets. In bull markets, stocks and ETFs tend to form steady, upward trends, providing ideal buy entry points by gently pulling back to support of their 10 and 20-day moving averages along the way. In bear markets, however, the downward moves are usually much more violent, and often come in the form of overnight gap downs. Because so much of the market’s downward price action over the past week has been in the form of large opening gap downs, the risk/reward ratio of getting short has not been very good. So, we’ve opted for the path of remaining disciplined and patient instead.

Since its inception six years ago, the goal of The Wagner Daily newsletter has been simple. Along with providing quality, objective trader education, our focus has been on consistently outperforming the benchmark S&P 500 Index by a large percentage, year after year. We’ve met this objective through a combination of market timing, rigid money management rules, and ETF selection. Over time, our strategies have been proven to work, as evidenced by our detailed cumulative performance results.

Despite a string of losses this month, our model ETF account is still showing a gain of 5% in the third quarter. As the S&P 500 is down 10% so far this quarter, we have outperformed the benchmark S&P 500 Index by approximately 15% over just the past two and a half months. Year-to-date, we’re proud to say our model ETF account is showing a gain of approximately 22%, while the S&P is showing a 21% loss so far this year. As these numbers unequivocally prove, it pays to stick to our disciplined, patient strategy, even when undergoing a string of losing trades.

Today’s Watchlist:

There are no new setups in the pre-market. If we enter anything new, we’ll promptly send an Intraday Trade Alert.

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.

    Open positions (coming into today):


    Closed positions (since last report):

      QLD long (250 shares from September 11 entry) –

      bought 63.18, sold 60.26, points = (2.92), net P/L = ($735)

      IBB long (400 shares total; 300 from Sept. 11 entry, 100 from Sept. 16 entry) –

      bought 83.72 (avg.), sold 81.16, points = (2.56), net P/L = ($1,032)

    Current equity exposure ($100,000 max. buying power):



    • Both QLD and IBB stopped out in yesterday’s broad-based bloodbath. We are now flat, in “capital preservation mode,” and waiting for the market to calm down a bit.
    • 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.

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Edited by Deron Wagner,
MTG Founder and
Head Trader