Commentary:

In a follow-up to Thursdays action stocks were punished on Friday on higher trade. All five major indices closed lower by over 2.0% as stocks gapped down at the open, rallied until the 11:00 o’clock reversal period and then sold off for the remainder of the day. For a second day in a row the small-cap Russell 2000 was the day’s big loser. By the closing bell the high beta index fell 3.0% Both the S&P 500 and the Dow Jones Industrial Average plummeted 2.7% while both the Nasdaq and the S&P MidCap 400 both plunged 2.4%. Needless to say, it was not a good day for Wall Street.

Market internals deteriorated significantly on Friday. On the NYSE the bearish price action was backed by a 29.4% spike in volume. On the Nasdaq turnover increased by just over 4.0%. Declining volume outpaced advancing volume by a whopping 30 to 1 on the Big Board and 8.2 to 1 on the Nasdaq. Institutions were actively selling on Friday as evidenced by the uptick in volume. Based on this action we would classify the Friday as a clear distribution day across the board.

We closed our long position in EUO to capture a healthy profit of over 4.0% in just two days. We decided to take profits on EUO given that this is the first rally above the 200-day since this breakout move began on September 1st. Typically, the first test of a major moving average is met with selling pressure soon after the breakout. We will be looking for a possible re-entry on this trade into a pullback.

The ProShares UltraShort Semiconductor ETF (SSG) may offer a shorting opportunity. SSG has formed consecutive reversal candles on increasing volume at its 20-day EMA. Further, it has done so on increasing volume. A move above yesterday’s high of $63,39 provides a potential buying opportunity in this inverse ETF. We are placing SSG on the watchlist. For our subscribing members, details for this trade are posted in the watchlist segment of the newsletter.

The United States Oil Fund ETF (USO) has been finding it difficult to reclaim support of its 20-day and 50-day moving averages. However yesterday, USO formed a reversal candle which suggests that it might be prepared for a short term move higher. In addition, the low of yesterday’s reversal candle now serves as a key “pivot point” of support. For the moment USO offers two possible short setups. The first would involve a short entry if USO were to “overcut” the 50-day MA and quickly reverse lower and the second would be if USO were to quickly reverse on Monday and lose support of yesterday’s low at $33.25. We will be monitoring this ETF for a potential short entry

The market continues to exhibit weakness as evidenced by yet another distribution day on Friday. Still, not all leaders have broken down as AAPL, PCLN and AMZN have all held support over the past six weeks. However, if these remaining hold-outs begin to crack we would anticipate another significant round of selling in the broad market.

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Today’s Watchlist:

SSG
Long

Shares = 150
Trigger = 63.52
Stop = 59.29
Target = n/a
Dividend Date = n/a

Notes = See commentary above

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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

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Notes:

• Per intraday alert, we sold EUO to lock in a 1% gain in the model portfolio.
• 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 support@morpheustrading.com if not already set up for this value-added feature we provide to subscribers.

Edited by Deron Wagner,
MTG Founder and
Head Trader