Picking up where the previous day’s close left off, stocks continued whipsawing between positive and negative territory throughout most of yesterday’s session. By day’s end, the bulls won the dizzying tug-of-war. The S&P 500 rose 0.7%, the Nasdaq Composite 0.5%, and the Dow Jones Industrial Average 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices climbed 0.5% and 0.8% respectively. Closing near their intraday highs, the major indices also settled in the area of their previous day’s highs. As such, the choppy trading range in the broad market continues.
Easing substantially from the prior day’s level, total volume in the NYSE retreated 37%. Total volume in the Nasdaq was just 4% lighter. The lower turnover across the board prevented stocks from registering another bullish “accumulation day.” Trading in the NYSE was the slowest since July 2, the session right before the Independence Day holiday. However, an unplanned outage in the NYSE may have partially been to blame for the much slower pace of trading.
A short-term, continuation trade setup may be developing in iShares Xinhua China 25 (FXI). Over the past week, FXI has traded in a tight, sideways range, right above support of its 20-day exponential moving average. If FXI rallies above the high of that narrow base of consolidation, it could lead to at least short-term bullish momentum that carries it to a fresh 52-week high. The setup is illustrated on the daily chart below:
Over the past two days, energy-related ETFs have begun to show relative strength. Most have been consolidating, building a base of support just above their 20 and 50-day moving averages. If the relative strength persists, several ETFs in the sector will breakout over the next week. PowerShares Oil Fund (DBO), which we bought on August 5, appears poised to make another leg up:
The Oil Service HOLDR (OIH) is also perking up, and could soon see a breakout above its multi-month downtrend line. Its 20 and 50-day moving averages are providing support just below its current price:
Yesterday, volume in Market Vectors Steel (SLX) moved above its average level for the first time in three weeks. The increased turnover was accompanied by a gain in SLX that put the ETF within striking distance of breaking out above a lengthy period of consolidation. This is shown on the daily chart below:
As explained in yesterday’s commentary, we’re not focusing on the broad-based ETFs right now because they’re stuck in a choppy, indecisive range. Much better trade setups, with more positive reward-risk ratios, can be found within select industry sectors, and even a few international ETFs. We have already detailed a few ETFs primed for a move in the near-term, and will continue scanning the broad realm of ETFs for additional trading opportunities as they present themselves.
Open ETF positions:
Long – IBB, SMH, DGP, DBO, FXB
Short – (none)
NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.
Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner’s new book, Trading ETFs: Gaining An Edge With Technical Analysis, was published by Bloomberg Press in August, 2008. Wagner also appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is 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. He is also a frequent guest speaker at various trading and financial conferences around the world.
For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com.
