Light Volume Necessitates Caution – The Wagner Daily
The Wagner Daily – June 29, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Equities closed strong amidst light volume for the second consecutive day. Price action was impressive as all five major indices saw gains of 1.2% or more. The small-cap Russell 2000 led the charge by posting an impressive 1.8% gain. The tech rich Nasdaq and the S&P MidCap 400 both improved by 1.5% as the S&P 500 and the Dow Jones Industrial Average advanced by 1.3% and 1.2% respectively.
For the second day in a row strong price action was dampened by mixed internals. Volume was down across the board following a very light volume day on Monday. Turnover on the NYSE fell by almost 4.0% and on the Nasdaq by 2.1%. However advancing volume overpowered declining volume by a factor of 5 to 1 on both major exchanges. Tuesday’s mixed internals suggest a lack of institutional participation in the rally. Due to the very light volume we would not classify Tuesday as an accumulation on Wall Street.
EWM hit its buy trigger and then rallied to close at the high of the day. Trade details are available to our membership in the watchlist segment of the newsletter.
The broad market as measured by the S&P 500 is now at the key psychological resistance level of 1,300. If the S&P 500 find its way above this key mark then it will likely continue its advance to the 50-day moving average. If the S&P finds its way to this key mark we would expect it to be met with formidable resistance.
The iShares MSCI Italy Index ETF (EWI) has been in a massive sell off since early May. Since that time it has lost support of all of its key moving averages and has broken below a two year uptrend line. Although EWI has managed to keep pace with the market over the past two days, it has done so on very light volume. EWI now faces serious resistance at the convergence of its 20-day EMA, 200-day MA, former uptrend line and current downtrend line. A rally into these key marks could provide a shorting opportunity for this ETF.
The market continues to struggle with gaining volume momentum. If hundreds of stocks were breaking to new highs we would be less concerned with the unimpressive volume. However, in light of the recent sell off the market now has considerable overhead and strong volume is generally needed to reclaim former support levels.
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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