Potential trend reversal entry in (UNG) – The Wagner Daily
The Wagner Daily – December 30, 2010
Concise technical analysis and picks of the leading global ETFs
Commentary:
For the first time this week, all of the major indices finished higher on the day. However, the gains were slim and trade was light. The S&P MidCap 400 led the advance as it posted a 0.3% gain on the session. The Nasdaq closed up by 0.2%, while the Dow Jones Industrial Average, The S&P 500 and the small-cap Russell 2000 all finished higher by 0.1%. The Nasdaq ended the day by establishing a new two year high. Stocks continue to grind higher despite the absence of institutional participation.
For the second consecutive day, market internals were mixed. Turnover was down across the board on Wednesday. Volume dropped by 7% on the NYSE and 1% on the Nasdaq. Trade also remained well below average. Advancing volume was greater than declining volume on both the NYSE and the Nasdaq, by a factor of 1.4 to 1.
On November 24th we took a long position in the United States Natural Gas ETF (UNG), as a potential trend reversal candidate. Since that time it has been quite a choppy ride in this ETF. However, UNG is now exhibiting signs that the potential trend reversal is gaining momentum. On December 28th UNG formed an impressive reversal candle on very strong volume, and closed above the 20-day and 50-day moving averages. Yesterday, it undercut the 20 and 50 day MA’s, but rallied back to close near the highs of the session. A move back above $5.88 could very well be the catalyst for a sustained reversal.
Since November 9th, the S&P Select Sector Technology SPDR ETF (XLK), has been forming a cup and handle-like pattern. Since December 7th, it has been consolidating in a very tight trading range (fifty cent range). A volume propelled rally back above yesterday’s high of $25.34, may provide a buying opportunity in XLK.
In the first two days of December, the Dow Jones Industrial Average surged by an impressive 355 points. Since then the Dow has only been able to advance another 223 points. Irrespective of the holiday season, this type of price action and accompanying weak market internals, suggest the rally may be losing momentum.
Please note. On Friday December 31st, only an abbreviated version of The Wagner Daily, summarizing open positions, will be published. Happy New Year to all!
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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