Following through on the previous day’s breakout, stocks bagged another round of solid gains yesterday. The main stock market indexes edged higher in the morning, then saw more significant buying interest into the close. The Nasdaq Composite rose 1.1%, the S&P 500 0.9%, and the Dow Jones Industrial Average 0.5%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 1.2% and 1.3% respectively. For the second day in a row, the major indices finished at their intraday highs.

Unfortunately for the bulls, yesterday’s gains lacked the punch of institutional accumulation. Total volume in the NYSE receded 18%, while volume in the Nasdaq limped in 20% lighter than the previous day’s level. In both exchanges, turnover also slipped back below 50-day average levels. With the markets closed for the Labor Day holiday on Monday, today’s session could be even quieter.

Yesterday, PowerShares Agriculture Fund (DBA) gapped up to break out above its short-term downtrend line. As such, a resumption its solid, intermediate-term uptrend is now under way. As one of the few ETFs to show relative strength by consolidating near its highs in August, we anticipate further upside in the near-term. The daily chart of DBA is shown below:

DBA

For the contrarians out there, or those who may be looking to hedge the exposure of any long positions, one ETF to consider buying is iPath S&P 500 VIX Mid-Term (VXZ). Yesterday, VXZ “undercut” support of its 50-day moving average, which had also converged with the 20-day exponential moving average. As such, a rally back above yesterday’s high would be a valid buy entry, although the ETF is unlikely to move very far if the market remains in rally mode. Still, it’s a decent hedge against long exposure, without directly placing new bets on the short side of the market. The setup is shown on the daily chart of VXZ below:

VXZ

With today’s session preceding a three-day, holiday weekend, we don’t expect a lot of action in the market today. Your best bet may be to simply set your stops and walk away, rather than aggressively looking for new plays on what is likely to be a light volume, minimal momentum session. Next week, we’ll see if this week’s rally has any legs, and will be on top of new ETFs to consider buying if it does.

NOTE: On Monday, September 6, the U.S. markets are closed for the Labor Day holiday. As such, The Wagner Daily will not be published that day. Regular publication will resume on Tuesday, September 7. Enjoy the long weekend.

Open ETF positions:

Long – TUR, DBA, UUP
Short (including inversely correlated “short ETFs”) – SSG, EPV

twitterbutton-0204.gif
The commentary above is an abbreviated version of a daily ETF trading newsletter, The Wagner Daily. Regular subscribers receive daily updates on all open positions, as well as new ETF trade setups with detailed trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.

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.

DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.

Charts created by TradeStation (tradestation.com).

ฉ 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.