The Wagner Daily - October 22, 2010
Concise technical analysis and picks of the leading global ETFs
Stocks closed mixed on Thursday, in what was a seesaw and volatile session. The market started the day off well by advancing 1.0%, and setting a new five month high. However, at the 11:00 am reversal period, the market sold off sharply. Then, at 2:00 pm, the market reversed and rallied into the close. Today's trading falls in line with our recent analysis that the market could be in the midst of a reversal. The major indices showed varied results on the day. The Dow Jones Industrial Average fared the best by posting a 0.4% gain. The S&P 500 and Nasdaq posted modest gains of 0.2% and 0.1% respectively. The small-cap Russell 2000 was the worst performing index, as it shed 0.6%. The S&P MidCap 400 also declined, but only lost 0.2% on the session. The best performing sectors were the Industrial and Consumer Discretionary sectors, posting gains of 0.81% and0.58% respectively. The Utility sector was the only significant laggard on the day, as it realized a loss of 0.4%.
Turnover on the NYSE and the Nasdaq was modest for the session. The two indices posted "mirror opposite" results, as NYSE volume dropped by 5.3% and Nasdaq volume increased by 5.3%. On the NYSE, declining volume outpaced advancing volume by a ratio of 1.2 to 1. On the Nasdaq, declining volume and advancing volume were at par.
Last week, our "tightened stop", was hit on the iShares Emerging Market Bonds Fund (NYSEARCA:EMB). At that time we received inquiries as to why we sold the position. Our reasoning was to sell into strength and re-enter on a pullback. Further, given the recent signs of a potential market reversal, we believed it was prudent to lock in a significant gain of $2,000.00. Since last week, EMB has retraced to the 20-day EMA, where it has consolidated for three days. If the market continues its advance, EMB presents a possible buying opportunity just above Thursday's high. EMB is officially back on our watchlist of long candidates. For our regular subscribers, the detailed; trigger, stop and target prices are posted in the "Watchlist" segment of the newsletter.
The ProShares UltraShort Gold ETF (NYSEARCA:GLL) is showing signs that a trend reversal is underway. Over the past eleven trading days, this ETF has seen a massive increase in volume. Large volume spikes often foreshadow trend reversals. Since the volume fueled gap-up on October 19th, GLL has consolidated for three consecutive days at the 20-day EMA. Of further significance, in today's trading, GLL managed to close above the 20-day EMA for the first time since August 4th. Further GLL has rallied above the downtrend line, as drawn from the July 28th "swing high", trough the September 10th high. We will be monitoring this ETF closely for a potential buy entry.
For the moment, we are still in an uptrend and, as such, remain bullish. However, this optimism is somewhat muted, as the broad market continues to show signs of weakening. Therefore, we advise caution under the current circumstances.
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: firstname.lastname@example.org.
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