After beginning the day slightly lower on the open, stocks reversed and grinded higher yesterday morning, but ran out of gas in the afternoon. In the latter half of the day, the major indices merely oscillated in a sideways range before finishing the session with mixed results. The Nasdaq Composite eked out a gain of 0.2%, but the Dow Jones Industrial Average was lower by the same percentage. The benchmark S&P 500 Index slipped 0.1%. The small-cap Russell 2000 lost 0.5%, but the S&P Midcap 400 edged 0.1% higher. Showing a bit of indecision into the close, the S&P and Nasdaq finished near the middle of their intraday ranges. The Dow settled in the bottom third of the day’s range.
Like the prices of the major indices, turnover was also mixed. Total volume in the NYSE eased 18%, but volume in the Nasdaq rose 7% above the previous day’s level. The higher volume in the Nasdaq enabled the index to score its second straight “accumulation day,” indicative of institutional buying. Trading in the Nasdaq also moved back above its 50-day average level.
As the S&P 500 tests key resistance of the upper channel of its four-month trading range, the iPath S&P 500 VIX Mid-term Futures (VXZ) has come into major support of the lower channel of its multi-month “pennant” formation. This is shown on the daily chart of the VXZ below:
Because VXZ is at such a major area of support, it may be a positive reward–risk ratio to consider buying this ETF near its current price, while keeping a protective stop about 3% below the September 14 low. Since this ETF is correlated to the CBOE Volatility Index (the “fear index”), which frequently moves in the opposite direction of the broad market, VXZ may be an ideal ETF for traders looking for a bit a bearish exposure to add to their portfolios, or for those who want a bearish position, but are unable or unwilling to initiate an actual short position on the broad market.
In yesterday’s commentary, we pointed out a potential short sale set up in SPDR Gold Trust (GLD). Specifically, we were targeting GLD for short entry only if it broke down below support of its three-day low, as well as its 20 day exponential moving average. We then followed up by saying, “Perhaps most important about this setup is the importance of not ‘jumping the gun’ with a pre-mature entry point before GLD actually breaks down below its three-day low. Since GLD is still pretty near its high, it would only take one day of solid gains for the ETF to zoom back up.” Zooming back up is exactly what happened yesterday, as GLD surged higher, breaking out to close a fresh all-time high, rather than following through to the downside. This is a good example of why we continually emphasize the importance of not “jumping the gun” with any of our trade setups. Although GLD was a setup we are considering for short entry, it never not met our criteria for the trigger price, so there was absolutely no harm done.
In the September 10 issue of The Wagner Daily, we pointed out a potential breakout play in iShares Xinhua China 25 Index (FXI). Specifically, we were anticipating a breakout above resistance of the weekly downtrend line that has been in place for the past ten months. Now, FXI is testing resistance of that pivotal downtrend line, and a rally above the September 14 high could generate extensive bullish momentum in the near to intermediate-term. The setup is shown on the weekly chart of FXI below:
In yesterday’s Wagner Daily, we explained why the major indices were at pivotal levels, and clearly summarized the technical state of the broad market with this chart of the S&P 500 SPDR (SPY):
Since the major indices were basically flat yesterday, the situation above remains the same going into today. As we said yesterday, “Over the next few days, traders’ eyes will be on this pivotal area of resistance, just above yesterday’s (September 13) high. This could lead to higher than usual volatility, along with a tug-of-war, as the bulls and bears battle for dominance at this pivotal resistance level in the broad market.” Rather than placing big bets on the market right now, consider laying low for a few days while the market makes up its mind. When it clearly shows it hand, there will be plenty of time to take advantage of the next dominant trend.
| Open ETF positions:
Long – TUR, EMB |
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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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