Reverse Your Thinking – The Wagner Daily
The Wagner Daily – July 6, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks snapped a five day winning streak to end the session mixed. The Nasdaq put in the day’s best performance as it rose by 0.35%. The small-cap Russell 2000 and S&P MidCap 400 closed higher by 0.2% and 0.1% respectively. By the closing bell both the Dow Jones industrial average and S&P 500 had shed 0.1% yesterday. Despite the mixed trading results the broad market did not appear to lose much of its steam.
For the second time in as many days market internals were mixed. Volume fell by 7% on the Nasdaq and by 3.4% on the NYSE. Declining volume modestly outpaced advancing volume by a ratio of 1.5 to 1 on the Big Board and 1.1 to 1 on the Nasdaq. The drop in volume points to a lack of institutional involvement in Tuesday’s action. Because of the mixed price action and mixed internals we would not classify Tuesday as either an accumulation or distribution day.
Following a gap down day on July 1st, the iShares Silver Trust (SLV) formed a reversal gap up candle yesterday and closed near session highs. We are placing SLV on the watchlist. We categorize this setup as a short term play since it is based mostly on the momentum of the reversal gap. We don’t anticipate being in this trade more than 2 days as it is a somewhat riskier trade. The psychology of the trade is simple. On July the 1st SLV gapped down and tested the two month swing low. This move serves to frighten bulls out of the position and attract short sellers. However, just as abruptly SLV reversed course and thereby trapped newly acquired bears in the trade. This second move carries additional weight because it occurred abruptly and unexpectedly. After just one day of selling pressure, SLV reversed and gapped above the previous day’s gap. A move above the eight day high of $34.78 may provide a buying opportunity in SLV. We may also consider an entry in this trade on a modest gap down or pullback in SLV. We will send an intraday alert should we decide to buy SLV on a pullback.
Yesterday, the Global X China Consumer ETF (CHIQ) formed a bearish reversal candle as it attempted to break above the April 20th high of $18.77. A loss of support at the 200-day moving average ($18.49) could provide a short entry trigger for this ETF. We are monitoring CHIQ closely for a potential short entry.
The major indices spent Tuesday consolidating at the five day highs. This suggests that the market may be consolidating before making another move higher. Nonetheless we continue to remain cautious given the poor risk reward of taking on new trades at the current levels.
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.
DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.
Charts created by TradeStation (tradestation.com).
© 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.
