Potential buy entry in (RSX) – The Wagner Daily
The Wagner Daily – February 25, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks ended the day mixed on Thursday on light volume. The tech heavy Nasdaq and the small-cap Russell 2000 ended the day higher by 0.6% and 0.4% respectively. The S&P 500 and the S&P MidCap 400 both fell 0.1%, while the Dow Jones Industrial Average ended the session down 0.3%.
Market internals ended the session mixed. Volume was down across the board. Turnover dropped by 17% on the Nasdaq and 10% on the NYSE. Advancing volume was greater than declining on the Nasdaq by a ratio of 1.9 to 1. However, on the NYSE declining volume outpaced advancing volume by a factor of 1.4 to 1.
The PowerShares DB Agriculture ETF (DBA) provides an excellent example of the Accumulation/Distribution technical indicator foreshadowing a price reversal. Notice that as DBA was setting higher highs (see red arrows), the Acc/Dist indicator was down trending. This divergence presents a clear bearish signal. It is important to note that Accumulation/Distribution can diverge from price for weeks or months before price follows. Consequently, this technical indicator is not intended to be used in isolation. As of yesterday, the Acc/Dist histogram is still in a downtrend and this presents a dilemma. DBA has held up well during the recent sell off in the market. Typically, we would not hesitate to consider buying DBA above the two day high. However, given the downtrend in Acc/Dist indicator, it puts into question whether or not a rally above the 2 day high would hold. Conflicting signals are not uncommon when ETFs and markets are reaching extremes.
The Market Vectors Russia ETF (RSX) performed quite well during the recent distribution in the market. After a brief undercut of the 50-day MA this ETF gapped up and closed near the high of the 11 day trading range. A volume fueled rally above yesterday’s high of $39.35 may provide a buying opportunity in RSX.
Because of the recent volatility in the market many potential setups that we had been monitoring were nullified. Nonetheless, volatility generally provides plenty of trading opportunities that meet our technical criteria. During periods of volatile market activity the best trades often develop intraday.
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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