Bullish Consolidation In The Market – (XRT) – The Wagner Daily
The Wagner Daily – January 9, 2012
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks ended the day mixed as trade waned. Stocks struggled to gain traction throughout the session and the day ended with only the Nasdaq closing higher. By the closing bell the tech-rich index managed to tack on a meager 0.2%. The S&P MidCap 400 ended the session flat, while both the small-cap Russell 2000 and the S&P 500 slid 0.3%. The Dow Jones Industrial Average was the day’s worst performer. The blue-chip index closed lower by 0.5%.
Internals were mixed on Friday. Volume fell on the Nasdaq by 7.5% and on the NYSE by over 16.0%. Declining volume outshined advancing volume on the NYSE by a ratio of 1.7 to 1, while on the Nasdaq advancing volume held the upper hand by a margin of 1.4 to 1. Based on Friday’s light volume, it is apparent that institutional players were on the sidelines.
On Friday, via intraday alert, we closed our long position in EUO and bagged a 1.6% gain on capital. We decided to exit the position since EUO has gapped up three consecutive sessions. We are playing the odds for a pullback in this ETF because, statistically, EUO has rarely rallied in the wake of three consecutive gap ups. Further, a 1.6% addition to capital is significant in what has been a rough trading environment. We will look to re-enter EUO if it pulls back.
On Friday we sent an alert that we were placing a buy stop on the SPDR S&P Retail ETF (XRT) just above the two day high of $52.76. On Thursday, XRT formed an impressive reversal candle on a significant spike in volume. If XRT can get above this critical mark, it has the potential to test the October 2011 high near $55.00.
Friday’s price action should favor market bulls, as the broad market consolidated near recent highs, in a tight range. Further, for the first time in months, we are beginning to see stocks that have held relative strength since last summer’s blowout, begin breaking out to new highs. At least for the moment, we are seeing price confirmation in the market.
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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