The Wagner Daily - September 12, 2011
Concise technical analysis and picks of the leading global ETFs
In a follow-up to Thursdays action stocks were punished on Friday on higher trade. All five major indices closed lower by over 2.0% as stocks gapped down at the open, rallied until the 11:00 o'clock reversal period and then sold off for the remainder of the day. For a second day in a row the small-cap Russell 2000 was the day's big loser. By the closing bell the high beta index fell 3.0% Both the S&P 500 and the Dow Jones Industrial Average plummeted 2.7% while both the Nasdaq and the S&P MidCap 400 both plunged 2.4%. Needless to say, it was not a good day for Wall Street.
Market internals deteriorated significantly on Friday. On the NYSE the bearish price action was backed by a 29.4% spike in volume. On the Nasdaq turnover increased by just over 4.0%. Declining volume outpaced advancing volume by a whopping 30 to 1 on the Big Board and 8.2 to 1 on the Nasdaq. Institutions were actively selling on Friday as evidenced by the uptick in volume. Based on this action we would classify the Friday as a clear distribution day across the board.
We closed our long position in EUO to capture a healthy profit of over 4.0% in just two days. We decided to take profits on EUO given that this is the first rally above the 200-day since this breakout move began on September 1st. Typically, the first test of a major moving average is met with selling pressure soon after the breakout. We will be looking for a possible re-entry on this trade into a pullback.
The ProShares UltraShort Semiconductor ETF (NYSEARCA:SSG) may offer a shorting opportunity. SSG has formed consecutive reversal candles on increasing volume at its 20-day EMA. Further, it has done so on increasing volume. A move above yesterday's high of $63,39 provides a potential buying opportunity in this inverse ETF. We are placing SSG on the watchlist. For our subscribing members, details for this trade are posted in the watchlist segment of the newsletter.
The United States Oil Fund ETF (NYSEARCA:USO) has been finding it difficult to reclaim support of its 20-day and 50-day moving averages. However yesterday, USO formed a reversal candle which suggests that it might be prepared for a short term move higher. In addition, the low of yesterday's reversal candle now serves as a key "pivot point" of support. For the moment USO offers two possible short setups. The first would involve a short entry if USO were to "overcut" the 50-day MA and quickly reverse lower and the second would be if USO were to quickly reverse on Monday and lose support of yesterday's low at $33.25. We will be monitoring this ETF for a potential short entry
The market continues to exhibit weakness as evidenced by yet another distribution day on Friday. Still, not all leaders have broken down as AAPL, PCLN and AMZN have all held support over the past six weeks. However, if these remaining hold-outs begin to crack we would anticipate another significant round of selling in the broad 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: firstname.lastname@example.org.
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