A Bad Time To Be A Bull: (DBA) – The Wagner Daily
The Wagner Daily – September 22, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks got pelted on a burst of volume into the close yesterday. All five major indices closed down by two percent or more. The small-cap Russell 2000 and the S&P MidCap 400 led the plunge as they posted losses of 4.0% and 3.8% respectively. The S&P 500 dropped 2.9% while the Dow Jones Industrial Average and the Nasdaq shed 2.5% and 2.0% respectively. Yesterday was a very bad day for Wall Street.
Market internals were decidedly bearish. Turnover spiked on both exchanges. The Nasdaq saw trade improve by 13.2%. On the Big Board turnover jumped by a healthy 32.0%. Declining volume overpowered advancing volume by a ratio of 22.3 to 1 on the NYSE and by a factor of 4.0 to 1 on the Nasdaq. The increase in volume combined with significantly higher down volume points directly to institutional distribution. Yesterday was clearly a distribution day for the market.
The PowerShares DB Agriculture ETF (DBA) has come under severe pressure lately and has just undercut a major support level near $31.25. Due to the severity of the recent selling DBA does not offer a good risk/reward entry at this time. However, we will be monitoring this ETF closely for a bounce into resistance as a possible short entry trigger and anticipate a bounce soon. If DBA holds support near this level and bounces, the next time it tests the $31.25 mark could result in a major selloff since there is no significant support left below this level.
Yesterday via intraday alert we cancelled the IYR setup and replaced it with a long position in SRS. This move was necessitated by the inability to borrow shares of IYR to short. SMNalso triggered and we entered the trade. By the closing bell both trades were up by more than 10%. It is likely that we will close both positions if the market gaps down at the open on Thursday. We will also be looking for an exit strategy for our EUO position.
Yesterday’s breakdown was so broad based that over 800 stocks closed lower by more than 4 percent. It is noteworthy that commodities are now moving in the same direction with stocks. That’s often an early sign that the market is capitulating. It now appears likely that the major indices will test the swing lows set in early August.
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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