Erratic Indecision – The Wagner Daily
The Wagner Daily – June 28, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks closed higher on Monday but on significantly lighter volume. All five major indices closed in the black with the Nasdaq spring-boarding 1.3% higher. The small-cap Russell 2000 was close behind as it posted a 1.0% gain yesterday. The Dow Jones Industrial Average and the S&P 500 both tacked on solid gains of 0.9%. The S&P MidCap 400 was the session’s laggard as it struggled to post a 0.5% improvement.
Despite the solid gains, market internals ended the session mixed. Volume plummeted by 40.0% on the Nasdaq and 32.0% on the NYSE. However, advancing volume was higher than declining volume on both exchanges. By the closing bell the spread ratio finished at 3.4 to 1 on the NYSE and 3.0 to 1 on the Nasdaq in favor of advancing volume. The dramatic decline in volume yesterday suggests that large institutional players did not participate in the rally. In the absence of strong market internals we would have to conclude that Monday was not an accumulation day for the broad market.
Our open short position in COW preformed well yesterday as it sold off sharply as the market rallied. This exhibition of relative weakness suggests that if the market turns lower in the next several days, COW could be met with serious selling pressure.
The iShares MSCI Malaysia Index ETF (EWM) has demonstrated significant relative strength to the broad market during the recent selloff. As the broad market has tested the 200-day MA, EWM has held support of its 50-day MA. For the past three sessions EWM has traded in a tight, twenty cent range as it undercut its 50-day MA. A volume fueled move back above the three day high of $14.90 could provide a buying opportunity in this ETF. We are placing EWM on the watchlist. Trade details are available to our subscribers in the watchlist section of the newsletter.
The UltraShort Real Estate ProShares ETF (SRS) formed a reversal candle on June 22nd and then gapped up on a massive spike in volume on June 23rd. Since the gap up, SRS has tested support of its 20-day EMA and the gap twice. Both times SRS rebounded off this key support zone. A move back above the June 23rd high of $15.32 may provide a buying opportunity in SRS. We will be maintaining a watchful eye on this ETF for a possible long entry.
For a third consecutive day the broad market has whipsawed but remained in a distinct trading range. This range bound reversal activity suggests indecision in the market. Consequently, there have been few quality technical setups over the past several days. We suggest caution amidst the current erratic market action.
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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