Which Way From Here?


Stocks reversed dramatically on Friday to close higher on mixed volume. The day began with a sharp selloff followed by a reversal at the forty five minute mark. The market moved higher until around 1:00 pm and then consolidated at the highs for the remainder of the day. All five major indices closed higher. The S&P MidCap 400, small-cap Russell 2000 and Nasdaq led the advance as they posted gains of 2.7%, 2.6% and 2.5% respectively. The S&P 500 climbed 1.5% while the Dow Jones Industrial Average improved by 1.2%.

For the third time in as many days the session ended with market internals mixed. The Nasdaq saw an accumulation day as volume increased by 3.1% and advancing volume outpaced declining volume by a ratio of 8.0 to 1. However, volume on the Big Board declined by 6.3% while advancing volume topped declining volume by almost 9.0 to 1.

Despite the fact that the broad market trend remains bearish, there is currently a divergence developing between the S&P 500 and Nasdaq that suggests we might see another move higher. We say this with caution due to the volatility in the market and have no desire to enter any long positions. The charts below clearly show this divergence. Notice that over the past four days, there have been two accumulation days on the Nasdaq and no distribution days. This is a short term bullish signal for the Nasdaq. However, the S&P 500 is presenting a different picture. Over the same four day period the S&P has witnessed one accumulation day and one distribution day. An accumulation day is defined as a trading session in which both the price action and the volume are higher than the previous day. A distribution day occurs when the price action is lower but the volume is higher than the preceding day. Generally speaking, an accumulation day followed within two or three days by another accumulation day suggests upward momentum (even in a downtrend). This is exactly what has occurred on the Nasdaq. However, when an accumulation day is followed within two or three sessions by a distribution day, this is often considered bearish (during a downtrend) since control of the trend is not being relinquished by bears. Obviously, this is what has occurred on the S&P 500. This divergence in price action suggests that we need to be cautious with our trading over the next several days until the market sorts out the direction of the next move

We exited our position in BZQ yesterday even though it did not hit its stop. We made a judgment call to close the trade due to the sharp reversal in the broad market. Even if the trade were to be successful it’s sometimes best to move to the sidelines when the market reverses so violently against an open position that is not well in the money. We maintained our short position in EWM since it is still well below its protective stop. We will continue to focus our attention on identifying quality short setups into any rallies and may look to trade smaller size and possibly widen our stops as a means of taking into account the wild swings in the market.

Today’s Watchlist:

There are no new official setups this morning. We will send an Intraday Alert if any new trades are made.

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

    position summary

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  • Per intraday alert, we added 100 shares to BZQ early in the session but sold the full position into the close due to the sharp reversal action.
  • 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