Continued relative strength in JP Morgan Alerian MLP Index (AMJ) – The Wagner Daily 
A roller coaster ride of a session concluded with the major indices finishing lower across the board yesterday. After opening substantially lower, stocks managed to claw their way into positive territory by mid-day, but the bears resumed control in the afternoon, causing stocks to slide back down and settle near their intraday lows. The Dow Jones Industrial Average lost 0.7%, as the S&P 500 and S&P MidCap 400 indices declined 0.8%. The Nasdaq Composite exhibited relative strength by staying in the plus column for most of the day, but it ultimately fell victim to the broad market selling pressure and closed 0.3% lower. Conversely, the small-cap Russell 2000 showed relative weakness, with the index shedding 1.20%. It was the third consecutive day the broad market lost ground, making it the longest “losing streak” in approximately a month.
Total volume in the NYSE was on par with the previous day’s level, as turnover in the Nasdaq eased 10%. The lighter volume “down day” was positive, as it prevented the S&P and Nasdaq from registering another bearish “distribution day.” In the NYSE, declining volume outpaced advancing volume by 3 to 1. Declining volume also exceeded advancing volume on the Nasdaq, but at a more moderate ratio of 3 to 2. Despite the losses, market internals over the past three days have not been negative enough to suggest a change in trend has occurred.
As the main stock market indexes have moved lower over the past three sessions, the JP Morgan Alerian MLP Index (AMJ) has demonstrated relative strength by holding near the high of its consolidation. [NOTE: For traders not familiar with AMJ, it tracks the performance of the energy MLP (Master Limited Partnership) sector. Click here to download a factsheet from the JP Morgan web site, which more clearly explains this ticker.] Since its inception, AMJ has been in a solid uptrend, and there are presently signs this ETF is still being accumulated. As mentioned, AMJ has exhibited relative strength to the broad market over the past 3 days. In addition, the volume on the “up” days has been strong over the past week. Since early July, AMJ has also been consolidating in a tight, sideways range, near its highs (which is bullish). Additionally, the Accumulation/Distribution line has remained flat, even during high volume selling days, for the past two months. Although this ETF is presently not on our watch list, a rally above the September 22nd high could present a buying opportunity. The daily chart of AMJ is shown below:
Yesterday’s broad-based decline caused the S&P 500 to slip back below the important 1130 mark discussed in our September 21st commentary. However, it’s too early to declare a bearish failed breakout, as the past three days of selling have not been met with a spike in volume that would imply a trend reversal. Nevertheless, the major indices are at an important crossroad that presents the possibility of a trend change if further losses are sustained. Still, if stocks find support at yesterday’s lows, and consolidate from here, odds are good the recent uptrend will remain intact. As we have stated several times over the past week, caution is advised right now.
Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to: deron@morpheustrading.com.
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