Are The Bears Back – (GDXJ)(EWJ) – The Wagner Daily
The Wagner Daily – November 17, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks were pummeled yesterday as they reversed sharply in late session trading to close near session lows. Trade was brisk. All five major indices posted similar results. The Nasdaq and the S&P 500 both plunged 1.7%. The Dow Jones Industrial Average, S&P MidCap 400 and small-cap Russell 2000 all fell 1.6%. Wednesday was clearly not a good day for Wall Street.
In stark contrast to Tuesday’s results, market internals were decidedly bearish on Wednesday. Volume surged across the board. On the Nasdaq turnover increased by almost 16.0% while on the NYSE it climed 14.5%. In addition, declining volume held the upper hand on both exchanges. By the closing bell the ratio of advancing to declining volume stood at -5.5 to 1 on the NYSE and -2.5 to 1 on the Nasdaq. The late session surge in volume accompanied by stronger declining volume suggests that institutions were actively participating in the selling. Wednesday was a clear distribution day for the broad market.
Yesterday, on heavier trade, the iShares MSCI Japan Index ETF (EWJ) lost a major support level at $9.17. Prior to yesterday EWJ has held support at this level dating back to July 2009. Yesterday was a clear short entry trigger for EWJ. However, it is not advisable to “chase the trade”. Rather, we prefer to wait for a bounce if we were to enter EWJ on the short side.
The Market Vectors Junior Gold Miners ETF (GDXJ) has come under pressure lately as it has posted consecutive distribution days. Further, GDXJ is now below both the 20-day and 50-day moving averages. However, GDXJ is stilling clinging to support of its uptrend line. A loss of support of the uptrend line could result in a shorting opportunity in this ETF. We are monitoring this setup carefully for a potential short entry.
Despite the fact that the market posted another distribution day on Wednesday, the running 20-day total of distribution days remains at four. Distribution days are counted based on the most recent twenty day period. The distribution day that occurred on October 17th should no longer be counted since it falls outside of the most recent 20-day timeframe. Still, the number of distribution days remains high for a market that is trying to rally and caution is warranted.
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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