Distribution on the S&P – (SLV) (EWU) – The Wagner Daily
The Wagner Daily – October 26, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks plummeted on Tuesday erasing Monday’s gains. The market gapped down at the open and closed near the dead lows of the day. All five major indices ended in the red. The small-cap Russell 2000 led the retreat as it plunged 3.0%. The S&P MidCap 400 dropped 2.4% while the Nasdaq followed closely as it fell 2.3%. The S&P 500 slid 2.0% and the Dow Jones Industrial Average shed 1.7%.
Market internals ended mixed for a third straight day. Volume fell on the Nasdaq by 2.3% but surged on the NYSE by almost 9.0%. However, declining volume led advancing volume by a factor of 10.4 to 1 on the NYSE and 4.9 to 1 on the Nasdaq. Because of the higher volume, yesterday qualifies as a distribution day for the NYSE.
Yesterday, via intraday alert, we entered a long position in the iShares Silver Trust ETF (SLV) as it rallied above resistance of its 20-day EMA on a big spike in volume. Trade details are available to our subscribers in the open positions segment of the newsletter.
The iShares MSCI U.K. Index Fund (EWU) formed a reversal candle and closed near session lows on higher volume yesterday. A drop below yesterday’s low of $16.48 could present a shorting opportunity in this ETF. We are placing EWU on the watchlist. Trade details are posted in the watchlist section of the newsletter for our subscribers. For those who cannot enter short positions, the ProShares UltraShort MSCI Europe (EPV) provides a reasonable proxy for EWU.
The distribution day on the S&P 500 is concerning as it casts some doubt on the overall health of the market. As mentioned in yesterday’s newsletter, we expected a pullback from the current levels, but a pullback on increasing volume is never a good sign. Still, the Nasdaq did not see a distribution day yesterday and that is positive. Because of yesterday’s price and volume action on the S&P, for the moment, we’re shifting our market opinion from modestly bullish to neutral.
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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