Potential short setup in Technology (XLK) – The Wagner Daily
The Wagner Daily – April 7, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks closed mixed yesterday on a modest increase in volume. The blue chip Dow Jones Industrial Average and the technology rich Nasdaq both rallied 0.3% for session. The S&P 500 finished higher by 0.2%, while the SYP MidCap 400 closed at par. The small-cap Russell 2000 was the only index to lose ground on the day, as it shed 0.2% yesterday. Stocks ended the day virtually unchanged but on heavier trade. The major indices moved higher in the morning but the 2:30 pm reversal period brought late day selling pressure that drove the market to the flatline. The S&P MidCap 400 and the small-cap Russell 2000 both tacked on 0.4% gains for the session. The Nasdaq closed fractionally higher, while the Dow Jones Industrial Average and the S&P 500 closed fractionally lower.
Market internals were positive for the session. Turnover rose modestly across the board on Wednesday. Volume closed the day up by 3.3% on the Nasdaq and 4.5% on the NYSE. Advancing Volume outpaced declining volume by a ratio of 1.6 to 1 on the Big Board and 2.0 to 1 on the Nasdaq. Although volume increased and advancing volume exceeded declining volume on both indices, we would not consider Wednesday to be an accumulation day in the market. In our opinion the mixed price action and the sharp sell-off of many market leaders nullifies the positive market internals.
The Guggenheim Timber ETF (CUT) has been consolidating in a tight trading range for the past five sessions. Further, volume has contracted significantly during this consolidation period. This type of volume action is often considered bullish. A volume fueled move above yesterday’s high of $23.43 may present a buying opportunity in this ETF. We are closely monitoring CUT as a possible long candidate.
The SPDR S&P Select Technology ETF (XLK) has been lagging the broad market for several weeks now. This is evidenced by the fact that XLK has been unable to close above resistance at its 50-day MA. Should the market reverse, XLK may provide a short entry below the three day low of $25.82. WE are watching XLK closely for a potential short entry.
Both long and short setups were noticeably absent from our technical scans. Further, market leaders struggled yesterday which could be a signal that a near term correction is at hand.
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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