The Wagner Daily – June 25, 2009
Concise technical analysis and picks of the leading global ETFs
Commentary:
After gapping higher out of the starting gate, stocks trended higher throughout yesterday morning’s session, but buying interest faded after the Fed announced no significant changes to economic policy in its afternoon address. The broad market sold off in the final hours of trading, causing the major indices to surrender a majority of their earlier gains. Still, all the indexes except the Dow finished in positive territory. The Nasdaq Composite gained 1.6%, as the S&P 500 advanced 0.7%. Significant relative weakness in blue-chips caused the Dow Jones Industrial Average, up 1.2% at its intraday high, to finish 0.3% lower. The small-cap Russell 2000 and S&P Midcap 400 indices rallied 1.0% and 1.3% respectively. The Nasdaq Composite closed near the middle of the day’s range. The S&P and Dow settled in the bottom quarter of their intraday ranges.
Compared to most Fed days, yesterday’s 2:15 pm announcement on economic policy had a rather minimal affect on volume levels. Despite the slightly faster pace of trading in the afternoon, turnover in both exchanges remained tepid. Total volume in the NYSE decreased 9%, while volume in the Nasdaq was merely on par with the previous day’s level. The lack of higher volume prevented the Nasdaq from registering a bullish “accumulation day,” which would have pointed to buying amongst hedge funds, mutual funds, and other institutions. Since registering three “distribution days” within the past two weeks, the stock market’s bearish overall volume patterns have yet to improve.
At the beginning of the week, we illustrated how the silver and gold ETFs were holding above support of their 50-day moving averages, poised to resume their dominant uptrends. On Tuesday, June 22, both iShares Silver Trust (SLV) and SPDR Gold Trust (GLD) gapped below their 50-day MAs, where they remained the following day as well. However, GLD rallied back above its 50-day MA yesterday, closing right at resistance of its short-term downtrend line. SLV moved above its 50-day MA on an intraday basis, but closed just below it. So far, it’s looking as though the weakness on June 22 and 23 may have been a classic “shakeout,” designed to cause traders and investors with tight protective stops to close their positions at the lows of the range. Looking at the historical price action of these two ETFs, one will quickly notice such “shakeouts” are relatively common. This is why we gave our SLV stop a bit of “wiggle room” below its 50-day MA, which has allowed us to remain with the position through this pullback. If GLD manages to close above yesterday’s high, in today’s session, it could quickly zoom back to its recent highs. The “shakeout” in GLD is illustrated on the daily chart below:
Market Vectors Gold Miners (GDX), comprised of a basket of individual gold mining stocks, is sporting a similar pattern to GLD, which follows the price of the spot gold commodity itself. On the daily chart below, notice how GDX gapped above its short-term downtrend line, after falling below its 50-day MA for just two days. As with GLD, a close above yesterday’s high should enable resumption of the dominant, long-term uptrend. The reappearance of overall economic fears amongst the public would likely benefit the precious metals ETFs as well:
Upon noting the late-day weakness in the stock market, we entered a new position in UltraShort Financials ProShares (SKF). The financial sector showed notable relative weakness after the Fed announcement, and the sector was already in a precarious technical state before the day began. The S&P Financial SPDR (XLF) has overhead resistance of its 20 and 200-day moving averages, and is valiantly attempting to cling to its 50-day MA. Because of the pattern in XLF, the inversely correlated SKF has a pretty good reward/risk ratio for entry near its current level. Here’s a snapshot of XLF:
Yesterday morning’s broad market strength caused UltraShort Real Estate ProShares (SRS) to hit our trailing stop price of $20.89. As such, we netted a gain of 10.7% on the remaining half position of the trade. A gain of just over 12% was realized on the first half of the position, which was sold on June 17. Additionally, we sold our long position in iPath India Index (INP) into strength of yesterday’s opening gap up, enabling us to scratch the trade for a tiny loss. At the time of entry, we bought the pullback to support of its 20-day MA, but recent price action causes us to now believe it will correct further, possibly all the way down to its 50-day MA. Other emerging markets ETFs have also corrected sharply, and some may even be in the process of forming “bear flag” patterns on their daily charts. Rather than risking a full loss on our INP position, we made a judgment call to take advantage of yesterday’s strength and close the trade with no harm done.
Open ETF positions:
Long – MZZ, SKF, IBB, DBA, UNG, SLV
Short – (none, but MZZ and SKF are inversely correlated ETFs)
NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.
Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group, which he launched in 2001. Wagner’s new book, Trading ETFs: Gaining An Edge With Technical Analysis, was published by Bloomberg Press in August, 2008. Wagner also appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is 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. He is also a frequent guest speaker at various trading and financial conferences around the world.
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