The Wagner Daily


A worse-than-expected unemployment report last Friday morning caused stocks to begin the day substantially lower, but the resilient bulls immediately stepped in, enabling the major indices to reverse into positive territory within the first thirty minutes of trading. However, bullish momentum was kept in check throughout the remainder of the day, as stocks subsequently meandered in a lazy, sideways range all the way to the closing bell. Both the S&P 500 and Nasdaq Composite advanced 0.3%, as the Dow Jones Industrial Average gained 0.2%. Small and mid-caps showed slight bearish divergence. The Russell 2000 and S&P Midcap 400 indices eased 0.1% and 0.2% respectively. With the exception of the Russell 2000 and S&P Midcap 400, both of which finished just above the middle of their intraday ranges, the main stock market indexes closed near the upper 20% of their intraday ranges.

Although stocks quickly shook off the opening weakness, market participants appeared to take a nap thereafter. Total volume in the NYSE was 17% lighter than the previous day’s level, while volume in the Nasdaq eased 9%. Turnover in both exchanges was well below 50-day average levels, and volume in the Nasdaq was the slowest in nearly a month. Notably, the major indices have closed higher in each of the past five sessions, but all five of those days were accompanied by declining volume. As such, last week’s gains were apparently the result of a temporary lack of selling pressure, rather than an abundance of buying interest. This is concerning because such a string of lower volume gains can easily be erased with just one day of swift institutional selling. Until we see at least a single round of higher volume gains, denoting the possible return of institutional buying, we view the long side of the market with a substantial amount of trepidation.

While scanning hundreds of ETF charts over the weekend, we observed the number of technical setups for the short side greatly outnumbered the quantity of bullish setups. Last week’s gains merely caused many ETFs to bounce into resistance of their prior uptrend lines that were broken two weeks ago. Quite a few ETFs also rallied to close right at new resistance of their 50-day moving averages. The iShares DJ Transportation Avg. Index (IYT) is a good example of this:

From October 21 through November 2, IYT got smoked, tumbling nearly 12% during that nine-day period. Furthermore, the decline that started on October 21 began at resistance of its prior high from mid-September, where a short-term “double top” was formed. Now, IYT enters this week at major resistance of its 50-day moving average (the teal line), which also approximately coincides with resistance of its 61.8% Fibonacci retracement. Certainly, IYT could move higher in the next few days, running stops of short sellers, but the intermediate-term uptrend has already been broken because IYT has formed a significant “lower high” and “lower low” on its daily chart. This tells us the reward-risk ratio of buying IYT, even if it reclaims support of its 50-day MA, is not very positive.

We’ve been discussing the relative weakness in small-caps lately, so the performance of the Russell 2000 this week is likely to remain a leading indicator for the direction of the broad market. On the daily chart of the Russell 2000 below, notice the index is now bumping into resistance of its prior low from September, and still must contend with resistance of both its 20 and 50-day moving averages:

One of the only sectors with charts that still look relatively healthy is energy. Unlike nearly every other industry, the various energy ETFs neatly held support of their 50-day MAs on the recent pullback, and also formed significantly higher “swing lows” above their early October lows. If ETFs such as Oil Service HOLDR (OIH) or S&P Energy SPDR (XLE) move above the highs of last week’s consolidation, they may be good for a short-term pop, at least to a test of their recent highs.

The lack of any volume on the upside is preventing the market from getting the confirmation we would like to see in order to start buying on the long side of the market again. Nevertheless, despite what would “normally” be ideal technical setups for short selling (bounce into resistance of 50-day MA or prior uptrend line after breaking down, head and shoulders patterns, relative weakness, et cetera), bullish momentum remains amazingly persistent. Therefore, we’re inclined to just continue focusing on managing existing positions right now, rather than entering new ones. It’s starting to look as though the major indices may be entering into a range-bound period of trading for the next several months, in which the bulls and bears share a balance of power. If that occurs, we would trade both sides of the market, long the ETFs with relative strength, and short those with relative weakness, but we first need to see that a sharp move in either direction is not just around the corner.

Today’s Watchlist:

There are no new setups in the pre-market today. As per the commentary above, we’re waiting to see how the rebound attempt on light volume plays out before entering new positions. For now, we’ll continue to focus managing existing positions. As always, we’ll send an Intraday Trade Alert if any new trades are entered 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. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices.

    Having trouble seeing the position summary graphic above?
    Click here to view it directly on your Internet browser instead.


  • Because of today’s pre-market strength, both FAZ and EDZ are poised to open in the vicinity of our stop prices. As such, we’re using the MTG Opening Gap Rules to manage both positions. New stops for those two ETFs will either be the current stops (listed above) OR 15 cents below their lows of the first 20 minutes, whichever is lower. In the event the market opens higher, and immediately surges sharply higher, we may exit these positions below their 5-minute lows, rather than 20-minute lows. But if we do that, we’ll promptly send an Intraday Trade Alert confirming such. If no separate alert is received, assume the standard gap rules apply. If stopped out, EDZ will result in a loss, but FAZ will be profitable because we trailed the stop higher. Essentially, management of these short positions allowed us to buy an “insurance policy” to protect against the downside, without the risk of a significant net loss.
  • On November 5, the wild move in UUP was NOT a result of any change in the actual value of the U.S. dollar. Rather, it was caused by an odd situation where shares of UUP literally dried up. Nevertheless, the bottoming pattern remains the reason for our entry into UUP, regardless of the premium now surrounding it. More about what happened in this Bloomberg article.

  • 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.
  • 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 [email protected] if not already set up for this value-added feature we provide to subscribers.

Click here for a free trial to Morpheus Trading Group’s other newsletter services.

Please check out the Wagner Daily Subscriber Guide to learn how to get the most from your subscription.

Edited by Deron Wagner,
MTG Founder and
Head Trader