Commentary:

Broad market indices opened well off Wednesday’s strong close, dropping over 2% in the first hour of trading. The opening weakness probed beneath the prior day’s low in the S&P 500 and Nasdaq, temporarily finding support at the rising hourly 20-EMA. After 90 minutes of consolidation, markets pushed to new intraday lows and continued to selloff the rest of the session. The ugly reversal was a disappointing follow up to Wednesday’s bullish accumulation day, as the prior day’s gains were completely erased. The Dow Jones Industrials shed 2.7%, while the S&P 500 and Nasdaq Composite finished down 3.3% and 3.2% respectively. The S&P Midcap 400 lost 3.5%, and the small-cap Russell 2000 closed down 4.1%. Major indices closed at/near the lows of the session.

Turnover declined on both exchanges. NYSE volume was 13% lighter while Nasdaq volume fell 10% off the prior day’s pace. Though the volume was lighter, it exceeded the 50-day moving average of volume on both exchanges. Technically speaking, yesterday does not qualify as a distribution day due to the lighter volume. However, we find it difficult to see the silver lining in the stats, when the overall price action just wasn’t what we were looking for.

Viewing the chart of the S&P 500 ETF (SPY) below, we clearly see that yesterday’s ugly reversal bar fails the recent breakout, and puts the S&P back into a range. The only moving average in a position to offer support is the 10-day MA (near 84.00 on SPY or 840.00 on $SPX). The best case scenario for the S&P is to hold yesterday’s low or slightly undercut the low on the open, before reversing higher and closing back above 850. If the S&P fails to reclaim breakout status, then we go back in to chop mode, where we could easily see a test of the range lows next week.

While the broad market was busy selling off yesterday, bonds also took a hit, as the iShares Barclays 20+ Year Treasury Bond ETF (TLT) closed down 2.3%. The money flowing out of stocks and bonds found a home in gold, with the SPDR Gold Trust ETF (GLD) up 2.4%. Viewing a 15-minute percent change chart, we see how nicely GLD trended higher all session, while the S&P 500 and TLT tanked:

Our two gold related long positions, DGP and GDX both closed up over 5%, with Thurday’s strong action in DGP shown below:

The bottoming process in the broad market is never a one day event, as we continually look for clues to tip the odds in our favor. So after a Wednesday’s promising start, we are left scratching our heads wondering what the heck went wrong by Thursday’s close. We have been laying low in terms of positions due to the lack of quality setups on either side of the market. Aside from the relative strength in metals, there isn’t much to get excited about, as there are very few reliable patterns to exploit for gains. We are not ready to abandon Wednesday’s breakout attempt just yet, as we could very well see some sort of meaningful reversal to the upside today. However, since we are in a bear market, we feel that the burden of proof should rest on the bulls. As such, we will continue to to play it close to the vest until the evidence suggests otherwise.

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Today’s Watchlist:

We are monitoring UGA for a potential re-entry point on a bullish follow through for the half position we sold yesterday. If/when it triggers, we will send an intraday alert.

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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):
DGP long (450 shares from Jan. 15 & 23 entries) –

bought 16.20(avg), stop 16.45, target 21.70, unrealized points = + 3.36 unrealized P/L = + $1,506

GDX long (150 shares from Dec. 26 entry) –

bought 31.40, stop 26.48, no target (will trail stop), unrealized points = + 3.00, unrealized P/L = + $450

UGA long (100 shares from Jan. 29 entry) –

bought 23.22, stop 20.49, no target (will trail stop), unrealized points = (0.12), unrealized P/L = ($13)

Closed positions (since last report):

UGA long (100 shares from Jan. 29 entry) –

bought 23.22, sold 22.81, points = (0.41), net P/L = ($43)

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

$15,585

Notes:

• Per intraday alert, we bought UGA on the break of a downtrend line yesterday. We sold half the position for a small loss due to the lack of bullish momemtum behind the breakout, but we are monitoring the action for a re-entry, should it push higher.
• For those of you whose ISPs occasionally deliver your e-mail with a delay, make sure you’re signed up to receive our free text message alerts sent to your mobile phone. This provides a great way to have redundancy on all Intraday Trade Alerts. Send your request to support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.
• 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