The Wagner Daily - December 22, 2010
Concise technical analysis and picks of the leading global ETFs
Commentary:
On subdued volume, the major indices rallied on Tuesday to close near the session highs. Stocks gapped up at the opening bell and steadily churned their way to higher territory throughout the day. However, there was a noticeable burst of selling in the last 20 minutes of trading, with the Dow being put under the most pressure. As has been common over the past several weeks, the market found leadership from the small-cap Russell 2000. The high beta index advanced by 1.0%, as both the S&P MidCap 400 and the Nasdaq gained 0.7% on the day. The S&P 500 climbed 0.6% for the day. For the second consecutive day the Dow Jones Industrial Average lagged all major averages. Nonetheless, the blue chip index posted a respectable 0.5% gain yesterday.
Volume was light on the session. Turnover declined on the NYSE and the Nasdaq by 4.7% and 1.8% respectively. Advancing volume outpaced declining volume by 3.7 to 1 on the NYSE and 2.6 to 1 on the Nasdaq. As would be expected, volume has been muted coming into the Christmas holiday.
The SPDR Dow Jones Wilshire International Real Estate ETF (RWX), fell victim to a massive gap down on December 17th. Since then, this ETF has recovered minimally on a large spike in volume. Further, since the November 4th high, RWX has set a lower-low (11/30), a lower-high (12/14) and another lower-low (12/17). This sequence of price moves suggests a trend reversal may be underway. A rally back into resistance near the down-trending 20-day EMA, could provide a shorting opportunity for this ETF.
The Guggenheim China Small Cap ETF (HAO), may be in the midst of a significant pullback. Over the past several months this ETF has formed a head and shoulders-like pattern. In mid November HAO was met with a wave of high volume selling. Then last week, an even bigger round of selling occurred, driving HAO below the neckline. The recent price action as also resulted in the 20-day EMA crossing below the 50-day MA. This is generally considered a bearish technical indicator. Yesterday, HAO could only rally minimally on a large spike in volume. This ETF is showing many signs of possible institutional distribution. A move back into the 20-day EMA may very well provide a short entry trigger for this ETF. We are monitoring HAO closely for a possible short entry.
Although the market has been moving to new highs, the move has lacked conviction. We are beginning to find a significant number of short setups from our daily scans. When this occurs, we are prone to be cautious. Consequently, we are tightening our stops in several of our open positions, and actively preparing to trade either side of 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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