Fighting off a significant gap down on the open, stocks pushed higher through the morning session before chopping around in a fairly tight range during the afternoon. A slight bounce in the final hour of trading allowed most averages to close in the top third of the day’s range. The S&P 500 closed 0.5% lower, while the small-cap Russell 2000, S&P Midcap 400, and Dow Jones Industrial Average each gave back 0.6%. The Nasdaq Composite lost 0.8%.
The bullish, morning reversal action came on heavy volume during the first hour of trading, but total volume steadily declined through the day, as the major averages settled into a trading range. By the close, total volume in the Nasdaq was 3% lighter than the previous day’s level, while volume in the NYSE receded 10%. Market internals were fairly quiet with declining volume beating advancing volume by less than 2 to 1 on both exchanges.
In yesterday’s report we discussed two potential buy points in PowerShares Agriculture Fund (DBA). Rather than undercutting the 20-day EMA before reversing, DBA triggered a buy entry for us yesterday, as it gapped open above the prior day’s high. DBA closed above the two-day high on a strong pick up in volume (detailed on the daily chart below). The gap up suggests the pullback will be very short-lived and quick to resume its uptrend.
Market Vectors Brazil Small-cap (BRF) followed up Wednesday’s undercut of the 20-day EMA by gapping down below the prior day’s low and the daily uptrend line before reversing. The additional shakeout action serves to wash out most of the weak longs. A move back above the prior day’s high will offer a low-risk entry point with a stop placed beneath the 8/12 low, minus some wiggle room.
The iShares MSCI Chile Index Fund (ECH) is in pullback mode after extending about 10% from the breakout pivot near 60.00. ECH remains one the top relative strength ETFs in the market, so we’ll continue to monitor the action for a low-risk entry point. Ideally, we would like to see a one or two bar shakeout below the rising 20-day EMA and the low of the gap up bar on August 2.
| Open ETF positions:
Long – TLT, DBA, UNG, UUP |
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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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