Potential short setup in (SMH) – The Wagner Daily
The Wagner Daily – March 14, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks rebounded on Friday but trade was light. All the major indices closed higher yesterday with the S&P 500 and the S&P MidCap 400 showing the most improvement. Both indices advanced by 0.7% for the session. The Nasdaq and Dow Jones Industrial Average followed closely, as both rallied by 0.5% on Friday. The small-cap Russell was Friday’s laggard as it could only muster a 0.3% improvement.
Market internals ended the session mixed. Turnover was down across the board as it plummeted by 22% on the Nasdaq and 18.2% on the NYSE. However, the ratio of advancing to declining volume was positive across the board. The day ended with advancing volume getting the best of declining volume by a factor of 3.6 to 1 on the NYSE and 1.9 to 1 on the Nasdaq.
On Friday, we entered the ProShares UltraShort QQQ ETF (QID) because it had rallied and closed above the 50-day MA for the first time since August, 2010. Further, QID began to show signs of institutional accumulation as volume increased dramatically and the accumulation/distribution histogram began up-trending in late February. Note that on February 25th, the accumulation/distribution histogram hit a new low but the price of QID did not. This divergence often signals the potential for a near term reversal. For our subscribing members, trade specifics can be found in the watchlist segment of the newsletter.
The Semiconductor HOLDRS ETF SMH may provide a shorting opportunity below the two day low of $33.51. The semiconductor sector has exhibited relative weakness to the broad market recently and has in large part led t the weakness in the Nasdaq. We are placing SMH on the watchlist. For our subscribers, trade details are posted in the watchlist segment of the newsletter. For those unable to short SMH, buying the inversely correlated SOXS above the two day high could provide a reasonable alternative trade.
Given the concerns coming out of Japan (Nikkei 225 closed down 6.2%), it appears as if we will gap down this morning. The unfortunate circumstances in Japan could be what precipitates an extended correction in the broad market.
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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