Market Needs A Pullback – (GDXJ) (IEF)- The Wagner Daily
The Wagner Daily – October 28, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks skyrocketed on Thursday on a massive spike in volume. The markets gapped up at the open, sold off briefly and rallied for most of the session. However, there appeared to be some profit taking into the close. The major indices all closed considerably higher with higher beta issues leading the surge. By the closing bell the small-cap Russell 2000, S&P MidCap 400 and the Nasdaq posted gains of 5.3%, 4.3% and 3.3% respectively. The S&P 500 added an impressive 3.4% and the Dow Jones Industrial Average tacked on 2.9%. Needless to say, it was a great day on Wall Street. Nonetheless, caution is warranted since reversal candles formed in several market sectors yesterday.
Market internals were nothing short of impressive as volume surged by 32.3% on the Nasdaq and 26.7% on the NYSE. Advancing volume overwhelmed declining volume by a ratio of 18.7 to 1 on the NYSE and 6.6 to 1 on the Nasdaq. Combined, the positive price action and strong internals point clearly to institutional buying in the market. Thursday was clearly an accumulation day across the board.
The iShares Barclays 7-10 Year Treasury ETF (IEF) lost a key support level at $102.05 yesterday as it gapped down and closed in the lower third of its trading range. Further, this move occurred on the highest volume in eleven sessions. A move back below yesterday’s low of $101.36 could provide a shorting opportunity in this ETF.
The Market Vectors Junior Gold Miner ETF is rallying into resistance at its downtrending 50-day MA. An overcut of this key mark followed by a reversal candle could provide a shorting opportunity in this ETF.
Because of the big rally, we decided to exit our position in SLV for a healthy 2.6 point gain (8.2%). In hindsight it was probably the right decision as SLV sold off sharply into the close and formed a reversal candle. Given the recent run up in the market we felt it was prudent to take profits since we are now at a major resistance level. We would not be surprised to see some selling over the next few days and are respectful of the massive selling that occurred just a few short weeks ago in the market. Although we have shifted our market bias to bullish recently, if this is a bear market rally then a turn here could be vicious. It was only prudent to take profits given all of these factors.
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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