Potential short entry in (GDXJ) – The Wagner Daily
The Wagner Daily – January 5, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks closed mixed on Tuesday on higher volume. The session began with a strong wave of selling, hitting the higher beta sectors particularly hard. The major indices remained under bearish pressure until 1:00 pm, at which time the market stabilized and rallied modestly into the close. The Dow Jones Industrial Average demonstrated the most relative strength, as it ended the day up by 0.2%. The S&P 500 fell 0.1%, while the Nasdaq, S&P MidCap 400 and the small-cap Russell 2000 shed 0.4%, 1.1% and 1.6% respectively.
Turnover was up across the board in yesterday’s session. On the Nasdaq, volume rose by almost 5% on the day. The Big Board saw turnover increase by 7.2%. Declining volume got the best of advancing volume by a ratio of 1.5 to 1 on the NYSE, and 1.1 to 1 on the Nasdaq. Based on the increase in volume and the weak performance of many market leaders, Tuesday could be characterized as a distribution day for the Nasdaq, the S&P MidCap 400 and the small-cap Russell 2000
Yesterday, we made a judgment call and took half of the position in GSG off the table. Due to yesterday’s volume and price action in IJR we have removed it from the watchlist. Our positions in PBW and UNG held up well during Tuesday’s volatile session. Please note changes made to stops in all open positions.
The Market Vectors Junior Gold Miner ETF (GDXJ), appears to be in danger of losing support. For the second time in the last eight sessions this ETF has closed below the 50-day MA. On December 23rd GDXJ gapped below the 50-day MA, but quickly recovered and filled the gap on January 3rd (Overcut 20-day EMA). Yesterday GDXJ gapped below the key 50-day MA mark, and formed a very bearish reversal candle. A move below yesterday’s low of $37.21 provides a potential short entry in GDXJ. We are placing GDXJ on the watchlist. For our subscribing members, trade details can be found in the watchlist.
Since finding support at the 200-day MA on December 28th, the iShares FTSE China 25 Index ETF (FXI), has rallied into significant resistance at its down-trending 50-day MA. Further, there is convergence between the 50-day MA and two Fibonacci retracement levels (38.2% and 50.0% retracements). An overcut and move back below the 50-day MA could present a shorting opportunity in FXI. We like this setup and will be watching it closely for a possible short entry.
Although the market recovered from what could have been a disastrous day of trading, the price and volume action was unsettling. Recent leadership from the Russell 2000 and the S&P MidCap 400 was seriously threatened. A gap-down or move below yesterday’s lows in the Nasdaq could spell trouble for market bulls.
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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