The Wagner Daily - February 11, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks opened Thursday's session sharply lower and appeared ready roll over. However, at 10:00 am the market "caught a bid" and the market rallied into the close, erasing most of the day's losses. Still, results were mixed among the major indices. The S&P MidCap 400 was the shining star of the day, as it climbed 0.6%. The Nasdaq and the S&P 500 ended the day slightly above breakeven. The small-cap Russell 2000 ended the day flat, while the Dow Jones Industrial Average slid 0.1%.
Volume spiked significantly on Thursday. Turnover soared 31.4% on the NYSE and 10.5% on the Nasdaq. Still, market internals ended the day mixed, as declining volume outpaced advancing volume by 1.2 to 1 on the Big Board and 1.3 to 1 on the Nasdaq.
Both our short and long positions continue to act well, demonstrating the divergence among ETF classes. Yesterday we sent out an intraday alert that we were shorting the Market Vectors Gold Miners ETF (NYSEARCA:GDX). For our subscribing members, trade details can be found in the watchlist segment of the newsletter. As discussed in the intraday alert, "We are keeping a tight stop (on GDX). If the trade does not go in our favor quickly, we prefer to exit and wait for a better entry if presented".
Over the past two days we have been tracking the progress of GXG. In yesterday's newsletter we commented: "(referring to Wednesday's newsletter) Emerging Market ETFs continue to exhibit relative weakness. The Global X/InterBolsa FTSE Colombia 20 ETF (NYSEARCA:GXG) is no exception. GXG could present a quality short setup if it finds support at the 200-day may and rallies back into resistance". "(referring to Thursday's newsletter) A quick glance at the chart below shows that GXG did find support at the 200-day MA. Two possibilities now exist for a potential short entry. The first would be as described above and the second would be a quick reversal back below Wednesday's low. This second potential option is now on the table due to the weakness in emerging market ETFs". Yesterday, GXG followed the second of the two options presented (see charts below).
Yesterday we received an email from one of our subscribers stating: "Regarding GXG short: a 30 day chart of EEV shows a pretty classic channel with EEV being in the upper third at present. I would guess that a signal for the GXG short should coincide with EEV breaking out above the channel. My interest stems from trading an IRA account and it's difficult to play the short side at times" - Paul. Obviously Paul was correct. The inversely correlated EEV should normally serve as a good alternative to shorting an emerging market ETF. There are two caveats however. The holding period for 2x inversely correlated ETFs would generally be shorter due to the daily resets. Further, Country specific ETFs can and do sometimes perform differently than a broad market ETF. Thanks for your question and observations Paul.
The PowerShares Hi-Yield Equity Dividend Achievers ETF (NYSEARCA:PEY) has undercut and is consolidating just below the 50-day MA. With cooperation from the broad market, a move back above the 8-day high of $8.76 may serve as a trigger for a long entry in this ETF.
Yesterday, the Dow closed lower for the first time in 9 days. Of interest was the lackluster performance by the Dow in light of a major 1.4% gain in the Dow Jones Transportation Average. Given the stellar performance by the transports, it was unusual to see the DJIA underperform.
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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