The Wagner Daily - September 2, 2011
Concise technical analysis and picks of the leading global ETFs
After a promising start stocks closed near session lows and snapped a four day winning streak. All five major indices closed in the red with the small-cap Russell 2000 leading the decline as it ended down 2.4%. The S&P MidCap 400 slid 1.5% while the Nasdaq dropped 1.3%. Big cap stocks fared slightly better as the S&P 500 and the Dow Jones Industrial Average contained losses at 1.2% and 1.0% respectively.
Market internals ended the session mixed. Volume fell across the board. On the Nasdaq volume waned by 12.8% and on the NYSE by 10.3%. However declining volume easily topped advancing volume by a ratio of 6.1 to 1 on the NYSE and 4.1 to 1 on the Nasdaq. Although volume was light and we would not classify yesterday as a distribution day, the price action does not bode well for the market in the wake of Wednesday's choppy reversal action.
The iShares MSCI Mexico Investable Market Index ETF (NYSEARCA:EWW) formed a massive reversal candle yesterday as it rallied above its 50-day MA and reversed sharply to close near the day's low. This type of price action serves to sweep poorly placed stops, attract market bulls and shake weak hands out of the market. A volume fueled move below yesterday's low of $58.47 could provide a shorting opportunity in this ETF. We are placing EWW on the watchlist. Trade details are available to our subscribers in the watchlist segment of the newsletter.
Over the past two sessions the Direxion Energy Bear 3x Shares ETF (NYSEARCA:ERY) formed two reversal candles as it undercut and then reclaimed support of its 50-day MA. A move back above the two day high of $16.62 may present a long entry trigger for ERY. ERY is also being placed on the watchlist. Trade details are posted in the watchlist section of the newsletter for our subscribing members.
Our position in RWM performed well as the small-cap Russell 2000 saw a follow through day and exhibited relative weakness to the other major indices. EWM also performed well as it formed a reversal candle yesterday and appears ready to make another move lower.
After yesterday's price action the market appears primed for a move lower. However we do have some concern over the drop off in volume yesterday. Under ideal circumstances we would have liked to have seen a strong volume distribution day. However, the market rarely gift wraps trading opportunities.
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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