Potential buy entry in (GDXJ) – The Wagner Daily
The Wagner Daily – April 21, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks were up sharply on Wednesday on expanding volume. All five major indices closed significantly higher. The small-cap Russell 2000 and the Nasdaq surged by 2.6% and 2.1% respectively. The S&P MidCap 400 almost eclipsed the 2% mark as it posted an impressive 1.8% gain on the day. The Dow Jones Industrial Average tacked on 1.5% while closing at a new 52 week high. The S&P 500 ended the session up 1.4%.
Market internals were positive across the board on Wednesday. Advancing volume was significantly higher than declining volume on both the NYSE and the Nasdaq. The advancing volume to declining volume ratio ended the day at 3.2 to 1 on the NYSE and 5.4 to 1 on the Nasdaq. Turnover spiked by 25% on the Nasdaq and 13% on the NYSE. Wednesday’s strong internals point clearly at significant institutional involvement in yesterday’s rally.
Given the massive gap formed yesterday, setups that meet our technical criteria a virtually nonexistent. Therefore, we will be spending the majority of our time waiting for setups to form. We are not inclined to chase the market just because it is going up (or down). A winning trade is composed of two parts: 1.The setup meets the trading rules and 2. The risk-reward ratio is in our favor. Just because a potential trade is moving in the direction expected does not mean the trade should be entered.
The Market Vectors Junior Gold Miner ETF (GDXJ) has been setting a sequence of higher lows and most recently, has made two significant undercuts of the 20-day EMA. This type of shakeout price action often precedes a breakout move as it washes out the weak hands and attracts shorting activity. An ideal long entry in GDXJ would be a pullback near $41.00, as this would fill the gap and bring GDXJ into a key support level. Alternatively, GDXJ could also offer a buy signal if it were to consolidate for several days between $40.75 and $41.75 and then rally above yesterday’s high of $42.12. We will be carefully monitoring this ETF for a potential long entry.
The Market Vectors Coal ETF (KOL) has undercut its 50-day MA two of the past three days. Yesterday, this ETF reversed sharply off this key moving average. Several days to several weeks of consolidation in the seven day trading range, followed by a volume fueled move back above the April 15th high of $49.60 may provide a buy entry signal for KOL.
Yesterday’s action was a clear follow through day for the market. The move was impressive and broad based with even lagging sectors posting gains. Based on Wednesday’s move, we would not be surprised to see all of the major indices test the 52 week highs.
As a reminder, the U.S. markets are closed on Friday, April 22nd. As such, there will be no newsletter on Friday. The next scheduled publication date for The Wagner Daily is Monday, April 25th.
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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