Potential short setup in (XLF) – The Wagner Daily
The Wagner Daily – March 11, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Thursday brought a volume fueled wave of selling to Wall Street, as all five major indices ended the session well in the red. The small-cap Russell 2000 led the market decline, as it fell 2.5% yesterday. The Nasdaq, Dow Jones Industrial Average, S&P 500 and the S&P MidCap 400 all plummeted by 1.9%. The S&P MidCap 400 was the only major index to close above its 50-day MA.
Market internals were definitively negative on Thursday. Turnover spiked by 19% on the Nasdaq and 28% on the NYSE. Declining volume was substantially greater than advancing volume on both indices. The ratio of declining to advancing volume was a bearish 12 to 1 on the NYSE and a negative 5.2 to 1 on the Nasdaq. Thursday was a clear distribution day for the broad market.
The S&P Select Financial SPDR ETF (XLF) is testing a critical support level just below its 50-day MA. A drop below March 3nd low of $16.33 could serve as a short trigger for this ETF. For those who are unable to short ETFs, the inversely correlated Proshares Ultrashort Financials ETF (SKF) would serve as a reasonable proxy to shorting XLF. XLF is not an official setup but we are watching it closely for a possible short entry.
The ProShares UltraShort QQQ ETF (QID) made a powerful reversal move yesterday and closed above its 50-day MA for the first time since August 2010. A move above yesterday’s high of $54.28 may provide a long entry in QID. We will be watching carefully for an intraday entry for this ETF.
We entered Wednesday with no open positions and no watchlist candidates. For the moment, we prefer to be in cash due to the lack of follow through in the 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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