Potential Buy Setup in (IYT) – The Wagner Daily
The Wagner Daily – December 23, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks rose modestly on Thursday, as volume faded. Stocks closed mixed on Wednesday on modestly higher volume. Large cap tech stocks weighed down the market for most of the day. After being ravaged by almost 2.5%, the Nasdaq surged higher late in the session to close down only 1.0% on the day. All the other major indices posted modest gains following the late day surge. The small-cap Russell 2000 and the S&P MidCap 400 ended higher by 0.3% and 0.2% respectively. The S&P 500 also added 0.2%, as the Dow Jones Industrial Average closed fractionally higher.
For a second straight day, market internals ended the session mixed. Volume dropped significantly across on both exchanges. On the Nasdaq turnover slid nearly 19.0%, while on the NYSE it fell 11.5%. Advancing volume did however hold the upper hand across the board. By the closing bell up volume topped down volume by nearly 4.0 to 1 on the NYSE and 3.7 to 1 on the Nasdaq. Given the light volume, we would not consider Thursday a distribution day.
During our research last evening, we noticed quite a few Head & Shoulders patterns in the market. In particular, the Dow Jones Industrial Average has formed a very distinct bullish Head and Shoulders. Notice the projected rally for the DJIA should it breakout above its neckline. The projected rally for a H&S pattern is the distance from the head to the neckline, projected above the neckline. The S&P 500 is also forming a distinct H&S, while the Nasdaq is not offering a similar setup. This is not surprising given the way the Nasdaq has lagged the broad market as of late.
The iShares Dow Jones Transportation Average ETF (IYT) has formed a distinct, bullish head and shoulders pattern on the daily chart. An important characteristic of a legitimate head and shoulders pattern is its symmetry. The H&S pattern for IYT is quite symmetrical and we are now close to the neckline. A move above $90.50 could present a buying opportunity in this ETF. If IYT breaks above the neckline, the project rally would be in the vicinity of $100.00. We are placing ITY on the watchlist. Trade details are available to subscribing members in the watchlist segment of the newsletter.
Yesterday, we opened a position in YCS as it hit its trigger on a big spike in volume. Our other open position (ZSL) continues to act well, as it spent the day consolidating along the 20-period and 50-period moving averages on the 60-minute chart. ZSL has now formed a distinct pennant formation that appears ready to resolve to the upside. The market continues to show signs of life as we come into the Christmas Holliday. Caution is warranted at this time of year since volume is typically light. Consequently, we suggest sticking with smaller position size until market conditions improve.
REMINDER: The market is closed on Monday and there will be no newsletter. The next newsletter will be published on Tuesday, December 27th.
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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