Follow The Market, Not The News: (EIDO)(EFA)- The Wagner Daily
The Wagner Daily – August 2, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
In a roller coaster session stocks closed modestly down on Monday. The day began with stocks gapping higher but immediately being met with selling pressure. The markets slumped until the lunch hour, consolidated at the lows until 2:45 pm and then caught a bid and rallied into the close. The S&P MidCap 400 and the small-cap Russell 2000 both ended the day lower by 0.7%. In similar fashion both the S&P 500 and the Nasdaq slid 0.4%. The Dow Jones Industrial Average clawed its way back to post a slim 0.1% deficit on the day.
Market internals ended the trading day mixed. Volume was strong as it closed above its 50-day moving average for the fourth consecutive day. However, day over day, volume fell by 3.0% on the Nasdaq and by 4.5% on the NYSE. For a second consecutive day declining volume outpaced advancing volume on both exchanges. By the closing bell the spread ratio stood at -1.7 to 1 on the NYSE and -1.9 to 1 on the Nasdaq. Monday’s drop in volume was all that stood in the way of another distribution day in the broad market.
Since breaking below its 200-day MA in late June the iShares MSCI EAFE Index ETF (EFA) has set a sequence of lower highs as it has struggled to reclaim this key moving average. Yesterday EFA gapped up above its 200-day MA but that marked the session high. EFA sold off for most of the day and formed a bearish engulfing candle. A move below yesterday’s low of $57.50 could present a shorting opportunity in this ETF.
The iShares MSCI Indonesia Investable Market ETF (EIDO) has exhibited impressive relative strength as it has rallied while the broad market has sold off sharply. However, EIDO may have become a bit over-extended and appears poised for a pullback. Yesterday after setting a new all time high this ETF formed a reversal candle and closed in the bottom half of its intraday range. We are monitoring EIDO as a possible long candidate on a pullback into the 20-day EMA.
Yesterday was a wild ride on Wall Street. The news of a debt deal obviously wasn’t enough to carry the market to higher ground. Yesterday’s price action provided a good example of why we don’t trade news. What was painted as a positive in the media wasn’t met with the same enthusiasm by market.
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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