Potential short setup in (XLY) – The Wagner Daily
The Wagner Daily – March 22, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks rallied briskly on Monday with all the major indices gaining 1.5% or more. The small-cap Russell 2000 led the advance by posting an impressive 2.4% gain. The S&P MidCap 400 added 2.0%, while the Nasdaq improved by 1.8% for the session. The Dow Jones Industrial Average and the S&P 500 both closed higher by 1.5%.
As might be expected, volume was down sharply following options expiration this past Friday. However it is noteworthy that volume came in below the 50-day moving average on both the Nasdaq and the NYSE. On the Nasdaq, volume plummeted 32 %, while on the NYSE it was down nearly 36%. Advancing volume was greater than declining volume by a margin of 2.5 to 1 on the NYSE and 4.5 to 1 on the Nasdaq. Because trade was below the 50-day moving average across the board, Monday would probably not be considered an accumulation day.
Our open positions in QID, EUM and RTH (short) are all intact with only EUM being against us. Yesterday, via an intraday alert, we opened a short position in XLF. Trade details are available in the open positions section of the newsletter.
The SPDR S&P Financial Select Sector ETF (XLF) gapped up, rallied into resistance and began exhibiting signs of relative weakness. Consequently, we took a short position in this ETF. XLF was unable to rally above its 20-day EMA and at one point it actually traded down on the day. The massive divergence between the Accumulation/Distribution Histogram and price also contributed to our opinion that XLF represented a good risk/reward as a short entry.
A quick review of the DJIA, SPY and Nasdaq reveals that yesterday’s rally was little more than a move into a zone of major resistance across all three indices. A significant number of ETFs are exhibiting precisely the same pattern. We would not be surprised by a big pullback in the market in the next day or two. The fact that the Nasdaq is lagging the DJIA and the S&P 500 does not bode well for the market moving higher, as the Nasdaq is generally considered a leading indicator of market direction.
The broad market continues to show signs of weakness. Long setups have been virtually non-existent in our daily scan of the market. It appears that the market is headed for another leg down.
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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