The Wagner Daily


Stocks bobbed and weaved through an extremely whippy session yesterday, as buyers and sellers wrestled for dominance near key support levels in the market. The major indices dropped sharply on the open, reversed to zoom sharply higher later in the morning, plunged to massive losses and new intraday lows in the afternoon, then recovered to finish with mixed results. Strong divergence among the main stock market indexes enabled the blue-chip Dow Jones Industrial Average to gain 2.0%, as the Nasdaq Composite lost 0.7%. The S&P 500 closed 1.3% higher, but the small-cap Russell 2000 and S&P Midcap 400 indices fell 2.4% and 2.6% respectively. The major indices generally settled near the upper third of their intraday ranges.

Total volume in the NYSE swelled 20%, while volume in the Nasdaq similarly rose 24% above the previous day’s level. The Nasdaq’s loss on higher volume was the third consecutive “distribution day” in the tech-heavy index. Conversely, both the S&P 500 and Dow Jones Industrial Average managed to register an “accumulation day” by advancing on higher volume. Does this mean the Nasdaq saw institutional selling, but the S&P and Dow saw institutional buying? In this case, not really. It was such a dizzying, indecisive day that it would be difficult to know what was really happening “under the hood” of the market yesterday.

In yesterday’s The Wagner Daily, we pointed out the opportunity for a short sale in the S&P 500 if the index fell below support of its October 22 low. However, we also cautioned that such a trade should strictly be done on an intraday basis, unless the October 10 lows were broken. Yesterday afternoon’s price action is a good example of why we said that. After the S&P 500 broke below its October 22 low, just after 2:00 pm ET, we sent a courtesy Intraday Trade Alert to subscribers, informing them of a potential daytrade to buy the inversely correlated UltraShort S&P 500 ProShares (SDS). At the same time, we also cautioned that a tight, trailing stop is required in order to protect against a reversal into the close. Subsequently rallying more than 3 points in less than 30 minutes, the SDS daytrade worked out well. But not surprisingly, key support of this month’s lows in the S&P 500 indeed triggered a reversal into the close, causing the index to rapidly reverse higher. As we generally avoid daytrades, the SDS alert was a courtesy for our more rapid-fire subscribers, but was not an “official” trade entry for us. Although daytraders had the opportunity to profit if they trailed tight stops, there was no business for swing traders like us to be initiating new positions during yesterday’s whippy session.

In the pre-market, both the S&P and Nasdaq futures are “locked limit down.” This means the futures contracts are down so much that special trade restrictions are temporarily in place to help prevent massive panic selling. This, of course, means that the stock market is poised for one heck of a weak opening this morning. As of 8:00 am ET, most of the broad-based ETFs that mirror the major indices were trading 6 to 7% lower in the pre-market. Assuming this persists into the open, it equates to opening prices just below yesterday’s lows. Since yesterday’s late-day reversal caused bullish “hammer” candlesticks to form on the daily charts, an opening below yesterday’s lows will trap a lot of bulls, thereby forcing them to create additional selling pressure. On an intraday basis, the Nasdaq Composite, Nasdaq 100, and S&P Midcap 400 indexes all “undercut” their October 10 “swing lows” yesterday. Today, we expect the Dow Jones Industrials, S&P 500, and Russell 2000 indices to follow suit by testing pivotal support of their October lows. IF the main stock market indexes close firmly below their intraday lows of October 10, we’re likely to see another leg down in this bear market before a significant bottom can be put in place. Nevertheless, the “good news” is that massive support of the year 2002 lows rest not far below current levels. This is shown on the long-term monthly chart of the S&P 500:

While there’s certainly no way of knowing if the year 2002 lows will mark the ultimate bottom of the current bear market, we would frankly be VERY surprised if the year 2002 lows did not at least lead to a significant, tradeable intermediate-term bottom that lasted at least a few months. Still, these are unprecedented times with unique scenarios that were not a factor in previous bear markets.

As there have not been any low-risk swing trading setups on the long or short side over the past several days, we’re thankful to be flat right now. On October 22, we realized losses on a few ETFs with relative strength we correctly bought after last week’s bullish reversal day (which obviously failed). But this morning’s opening gap down makes us appreciative of protective stop losses, as they prevent average-sized losing trades from turning into disastrous losses that could irreparably damage a trading account. In the words of Thomas Paine, spoken during the American Revolution, “These are the times that try men’s souls” (thanks, Tom). This is indeed true right now. Nevertheless, remember that markets don’t go straight down forever, just as they don’t go straight up forever. It’s all cyclical, so one merely needs to focus on protecting capital during the tough times, in order to take advantage of the good times when they arrive again.

Today’s Watchlist:

    There are no new setups in the pre-market today, as we’re quite happy to be flat right now. As always, we’ll promptly send an Intraday Trade Alert if/when we enter anything new.

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):


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



    • We are currently “flat and happy.”
    • 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