Potential pullback entry in (USO)- The Wagner Daily
The Wagner Daily – March 31, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks ended the session not only higher, but also near the day’s highs. All five major indices closed well in the black. The advance was led by small and mid cap stocks. The small-cap Russell 2000 tacked on an impressive 1.3% gain, while the S&P MidCap 400 ended the session up by a robust 1.0%. The Nasdaq and the S&P 500 both posted solid gains of 0.7%. The Dow Jones Industrial Average ended the Wednesday’s session higher by 0.6%.
Volume was solidly higher on Wednesday. Turnover increased by 12.4% on the Nasdaq and by 9.9% on the NYSE. Advancing volume topped declining volume by a ratio of 3.4 to 1 on the Big Board and 2.0 to 1 on the Nasdaq. Market internals suggest that yesterday was an accumulation day for the market.
Yesterday we were stopped out of both RTH and XLF, incurring modest losses. We exited our position in OIH, yielding over four points. Because the major indices are now nearing prior highs, we anticipate higher volatility in the near-term. As such, we have shifted to a more proactive stance of managing positions (both winners and losers) through tighter stops and reduced share size. Consequently, we made a judgment call to sell OIH since it appeared to be losing strength.
The United States Oil Fund LP ETF (USO) has been consolidating along its 20-day EMA for the past two weeks. Further, there is a bullish divergence between the price action in USO and the Accumulation/Distribution technical indicator. As the price of this ETF has been falling, the Accumulation/Distribution Histogram has been on the rise. This suggests institutional accumulation. A volume fueled move above yesterday’s high of $42.02 may provide a buying opportunity in USO.
The iShares MSCI Chile Investable Market ETF (ECH) has rallied into resistance at the 50-day and 200-day moving averages. A drop below the two day low of $70.25 may provide a short entry trigger for this ETF.
All in all, it was a good day on Wall Street. Market leaders have been re-energized by the market’s post earthquake resiliency. Further, the Nasdaq is now positioned well above its 50-day ma. It is noteworthy however, that homebuilder and chip stocks struggled yesterday. This suggests a lack of broad market participation and sector rotation.
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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