A Manic Market Monday – The Wagner Daily
The Wagner Daily – July 25, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks ended the session mixed on Friday as trade declined. Although four of the five major indices finished higher, only the Nasdaq showed an appreciable gain. The technology rich index ended the day up by a solid 0.9%. The small-cap Russell 2000 tacked on a small 0.2% gain while both the S&P 500 and the S&P MidCap 400 eked out 0.1% gains. The Dow Jones Industrial Average was the day’s laggard as it fell by just over 0.3%.
The session ended with market internals mixed. Volume declined sharply across the board. By the closing bell volume on the Nasdaq had declined by 30.0% and on the Big Board by 25.0%. Declining volume was fractionally higher on the NYSE. However, on the Nasdaq the spread ratio ended the session at 2.7 to 1 in favor of advancing volume. The light volume attests to a lack of institutional participation in the market on Friday.
In the July 22nd Newsletter we stated that EPU may be setting up as a short candidate. On Friday EPU formed a second consecutive reversal candle and closed barely off session lows. We are placing EPU on the watchlist. This ETF may be difficult to short and should this setup trigger a call to your broker may be necessary in order to obtain shares. There is no inverse ETF for this trade. BZQ could be considered as a distant proxy for this trade although it does not currently provide a clear entry trigger.
Since losing support of its 200-day MA in May, the Global X Lithium ETF (LIT) has rallied back to this key mark where it will likely find resistance. It is noteworthy that LIT has made this advance on light volume which suggests a lack of institutional participation in the move. LIT could present a shorting opportunity with an “overcut” of the 200-day MA and a quick move back below this level. We will be monitoring LIT closely for a possible shorting opportunity.
As of this writing the DJIA, S&P 500 and Nasdaq futures are all down approximately 1.0%. Based upon this data it appears that the market could be in for a rough day on Monday. We suggest caution in the current environment.
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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