The Trend Is Your Friend – The Wagner Daily
The Wagner Daily – June 7, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks fell sharply on Monday on marginally lighter trade. Stocks were under pressure the entire session as they opened at session highs and closed near session lows. The S&P 500 was unable to hold support at the key 1294.7 level. The S&P’s failure to hold this key mark does not bode well for market bulls as it resulted in the index setting its first lower-low in almost a year. As has become common lately, all five major indices closed in the red. Higher beta stocks got hammered as the small-cap Russell 2000, S&P MidCap 400 and Nasdaq shed 1.5%, 1.5% and 1.1% respectively. The S&P 500 also shed 1.1% while the Dow Jones Industrial Average contained losses as it dropped a modest 0.5% on the session.
Market internals ended the day mixed. Volume was modestly lower across the board but for the second time in three days, declining volume overwhelmed advancing volume by a wide margin. Further, only a handful of industry groups managed to avoid the relentless selling. Turnover fell on the Nasdaq by 3.2% and on the NYSE by 0.8%. On the NYSE the spread ratio ended the session at 14 to 1 in favor of declining volume. The Nasdaq saw this key technical ratio end the session at 4 to 1 in favor of declining volume. Although volume was lighter, we would be hard pressed not to consider the effects of Monday’s session as market distribution.
Yesterday we covered our short position in GDX netting almost a two point gain. Via intraday alert we also entered a new long position in the ProShares UltraShort MSCI Emerging Markets ETF (EEV). After pulling back and undercutting its 20-day EMA and 50-day MA, EEV spent the last three sessions consolidating between these moving averages. Yesterday, on a pickup in volume EEV broke above the three day trading range and we entered the trade. For our subscribing members full details of this trade can be found in the open positions section of the newsletter.
In yesterday’s newsletter we discussed the importance of the S&P 500 holding support at the 1,294.70 mark. With yesterday’s selloff, the S&P lost support of this key level and as a result a “lower, low” has been established. This is a very important technical signal as it suggests that the broad market may be in the midst of a trend change. The recent trendline break further supports this view.
Now that the S&P 500 has established a lower-low, we are even more convinced that a correction is at hand. It appears likely that this broad market index is now headed for its 200-day moving average.
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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