Potential breakout in Ultra Oil and Gas ETF (DIG) – The Wagner Daily
The Wagner Daily – April 6, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks ended the day virtually unchanged but on heavier trade. The major indices moved higher in the morning but the 2:30 pm reversal period brought late day selling pressure that drove the market to the flatline. The S&P MidCap 400 and the small-cap Russell 2000 both tacked on 0.4% gains for the session. The Nasdaq closed fractionally higher, while the Dow Jones Industrial Average and the S&P 500 closed fractionally lower.
Volume increased across the board yesterday. Volume closed higher by 15% on the Nasdaq and 8% on the NYSE. Advancing volume was slightly higher than declining volume by a ratio of 1.5 to 1 on the NYSE and 1.7 to 1 on the Nasdaq. Although volume was higher, the directionless price action shed little light on broad market institutional money flow. Tuesday should likely be categorized as a consolidation day for the major indices. Since we are still in an uptrend, this suggests the next move may be higher. For the moment however, a tug of war between bears and bulls seems to be playing itself out in the market.
Yesterday our higher stop was hit in SSG and we exited the trade. Because we were well in the money on the trade we raised the stop in this position on Monday. As we witnessed yesterday, proactively raising a stop once a trade is well in the money can often make the difference between a breakeven trade and a major loss. The higher stop also allowed us to objectively analyze the trade and decide if reentry was an option. After being stopped out in the morning we sent out an intraday alert that we were once again buying SSG. Trade specifics are available to our subscribing members in the open positions segment of the newsletter. Our open position in ENY performed well yesterday, as it rallied above the two day high on a burst of volume.
The ProShares Ultra Oil and Gas ETF (DIG) has been consolidating for the past five sessions in a tight trading range. A volume assisted move above the four day high of 63.45 could provide a long entry trigger for DIG. We are placing DIG on the watchlist. Trade details are available in the watchlist section of the newsletter.
The SPDR Dow Jones Industrial Average ETF (DIA) recently flashed a key bearish divergence between price and the Accumulation/Distribution technical indicator. On February 18th this ETF set a new swing high accompanied by a sharply up-trending Accum/Dist histogram. However, over the past several sessions DIA has probed to new highs while the Accum/Dist indicator has remained trendless. This is often a leading indicator that a reversal is near. Since this is a leading indicator, markets can trend against the Accumulation/Distribution line for extended periods of time before an actual reversal occurs. However, it would be foolish to ignore the slope of the trend of the Accum/Dist histogram given that DIA is at a key resistance level.
Tuesday’s action was filled with false breakouts and breakdowns as might be expected on a flat day in the market. Although the retail sector and precious metals found traction, many sectors struggled. This type of price activity continues to suggest that institutions are rotating money among sectors. Wednesday could very well hold the key to the next significant move in the market. However, due to sector rotation, we would not be surprised to see a lack of broad market participation in either direction.
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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