A Debt Deal Is Struck?: (SPY)(QQQ)- The Wagner Daily
The Wagner Daily – August 1, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Friday brought a whipsaw day of trading to Wall Street as stocks closed modestly lower across the board. All five major indices ended the session down. The Dow Jones Industrial led the descent as it slid 0.8% on the session. The S&P 500 ended the day down by 0.7% while the Nasdaq and the S&P MidCap 400 lost 0.4% and 0.3% respectively. The small-cap Russell 2000 closed marginally lower.
Market internals were bearish on Friday but the day’s price action does not appear to support broad based distribution in the market. Turnover was higher on both exchanges. Volume increased on the Nasdaq by 9.9% and on the NYSE by 15.4%. For the third consecutive day declining volume outpaced advancing volume across the board. The session ended with the spread ratio at 2.4 to 1 on the NYSE and 1.7 to 1 on the Nasdaq in favor of declining volume. We find it difficult to categorize Friday as a wholesale distribution day given reversal bars formed on the S&P 500, S&P MidCap 400, Russell 2000, Dow Jones Transportation Average and the NYSE.
Given that we are likely to see a sharp gap up on Monday morning, a review of both the S&P 500 and the Nasdaq are in order. Notice that the E-mini S&P 500 Futures (@ES) held support of its 200-day MA on Friday and in the overnight markets has reclaimed its 50-day MA. However, the 20-day and 50-day moving averages do present formidable resistance since we just lost support of these key marks. The picture on the Nasdaq looks somewhat better as the Nasdaq Composite Index ($COMPX) and the E-mini Nasdaq 100 Futures (@NQ) never came close to testing their respective 200-day MAs. In fact the Nasdaq 100 only undercut its 20-day moving average on Friday and in the overnight market has already reclaimed this key mark. Still, this whipsaw price action is not generally a good sign for bulls and in order to move higher the market likely needs at least several weeks of sideways price action to repair some of the recent damage.
As of this writing both the S&P 500 and Nasdaq futures are up over 1.25%. This price action is not surprising given that a deal appears to have been reached on the debt crisis. But given the divide that seems to exist in Washington we are on guard for more whipsaw action. The news is less important to us than how the market internalizes the news. Our cues come from price and volume action in the market and not media sources. We have stated several times over the past two weeks that we preferred to take a wait and see approach to trading in the current market environment and this sharp price reversal in futures markets supports our rationale. We still hold little desire to jump back in the market on either the short or long side until a clearer picture develops as to the market’s next big move.
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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