The Wagner Daily


Following through on Wednesday’s late-session weakness, the major indices opened substantially lower yesterday, sold off further at mid-day, then chopped around in a range into the closing bell. All the main stock market indexes tumbled at least 1% and finished near their lows of the day. Both the S&P 500 and Nasdaq Composite fell 1.2%, as the Dow Jones Industrial Average shed 1.3%. This time, small and mid-cap stocks moved in sync with the rest of the major indices. The Russell 2000 and S&P Midcap 400 indices lost 1.2% and 1.1% respectively.

The most negative aspect of yesterday’s sell-off was that total volume in the NYSE surged 39% above the previous day’s level. The higher volume losses pointed to institutional selling, and caused the S&P to register a bearish “distribution day.” However, it’s positive that turnover in the Nasdaq actually eased 7%. Further, much of yesterday’s accelerated trading in the NYSE could be attributed to a massive volume spike in Citigroup (C). Yesterday, nearly 3.8 billion shares of C changed hands; its average daily volume of the past three months is 500 million shares. Nevertheless, market internals were ugly. In the NYSE, declining volume trounced advancing volume by a margin of 7 to 1. The Nasdaq adv/dec volume ratio was negative by 5 to 2.

Some of the worst price action in yesterday’s session was found in the international ETFs, specifically those that track regions of emerging markets. Many of these ETFs gapped well below support of their 50-day moving averages; others broke support of key uptrend lines. The iShares Brazil Index (EWZ) is a good example of the former, while iShares Xinhua China 25 (FXI) was the latter action. This is illustrated on daily charts of both ETFs below:

Upon noting the major relative weakness and technical breakdowns in emerging markets ETFs, we sent an Intraday Trade Alert to subscribers in the afternoon, notifying them of our new trade entry into ProShares UltraShort Emerging Markets (EEV). An inversely correlated “short ETF,” EEV will move higher if the various emerging markets ETFs follow-through on yesterday’s breakdowns.

On the long side, one may wish to monitor S&P Homebuilder SPDR (XHB) over the next few days, as its daily chart pattern is setting up for breakout above a 3-month downtrend line. The ETF also showed relative strength in yesterday’s session by closing slightly higher, despite losses of more than 1% in the broad market. The setup is illustrated on the daily chart below:

Although yesterday’s sell-off may have been discouraging to the bulls, we view it as just another oscillation within the broad market’s sideways trading range of the past five weeks. Right now, most of the major indices are near the middle of their recent trading ranges. Until there is a clear, convincing breakout above the upper channel resistance, or below the lower channel support, there is no reason to be aggressive on either side of the market. Despite yesterday’s bearish entry of EEV, we still believe the best way to trade in the current environment is with a portfolio positioned on both sides of the market, and with lighter than typical share size on all trades. We now have just one bullish position (SMH long) and only two bearish positions (EEV and FAZ long). Share size on all three trades is just 50% the normal position size, thereby limiting our overall capital risk during the range-bound environment.

Today is “quadruple witching” options expiration day, the quarterly occurrence on which contracts for stock index futures, stock index options, stock options and single stock futures simultaneously expire. It is also the last expiration day of the calendar year. As big money players attempt to drive individual stocks to their preferred strike prices, expect choppy, volatile price action, especially in the afternoon. This will obviously impact the ETFs as well. It may be a good day to avoid new trade entries altogether. Given recent conditions, there’s a good chance you won’t be missing much.

Today’s Watchlist:

There are no new setups in the pre-market today, as we’re not inclined to enter anything new on a “quadruple witching” day. However, if we enter anything new, we’ll promptly send an Intraday Trade Alert with details.

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.

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  • Per Intraday Trade Alert, we bought EEV yesterday.
  • 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.
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Edited by Deron Wagner,
MTG Founder and Head Trader