Potential short setup in Gold Miners ETF (GDX) – The Wagner Daily
The Wagner Daily – February 10, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks finished Wednesday’s session modestly down, but on higher volume. However, the Dow Jones Industrial Average managed to eke out a fractional gain, making it the 8th consecutive up day for the blue chip index. The S&P MidCap 400 fell 0.2% on the session, while both the Nasdaq and the S&P 500 lost 0.3%. The small-cap Russell 2000 was Wednesday’s worst performer, as it slid by 0.4%.
Volume was up and stocks were down, resulting in a distribution day for the market. Volume rose by 6.3% on the Nasdaq and 6.0% on the NYSE. Declining volume outpaced advancing volume by a ratio of 1.7 to 1 on both indices.
We covered half of our position in ECH for approximately a 2 point gain. We made a judgment call to cover part of the position into weakness, as the 200-day MA looms just below. In yesterday’s newsletter we stated, “Emerging Market ETFs continue to exhibit relative weakness. The Global X/InterBolsa FTSE Colombia 20 ETF (GXG) is no exception. GXG could present a quality short setup if it finds support at the 200-day may and rallies back into resistance”. A quick glance at the chart below shows that GXG did find support at the 200-day MA yesterday. Two possibilities now exist for a potential short entry. The first would be as described above and the second would be a quick reversal back below Wednesday’s low. This second potential option is now on the table due to the weakness in emerging market ETFs.
Our position in the iShares Latin America 40 Index ETF (ILF) is close to losing a five month support level. Yesterday, this ETF tested the $50.50 mark for the fourth time in the past five months. We wouldn’t be surprised to see a bounce or hesitation at this level. However, given the weakness exhibited by ILF it could easily plummet to lower ground with a move below yesterday’s low of $50.40.
The Market Vectors Gold Miners ETF (GDX) appears ready to continue its recently established downtrend. A move below yesterday’s low of $56.10 may provide a short trigger for this ETF.
Emerging market ETFs showed extreme weakness on Wednesday. With just a minor pullback in the market the majority of these ETFs fell 1% or more. This price action demonstrates how powerful relative weakness/strength can be.
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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