The Wagner Daily - January 6, 2012
Concise technical analysis and picks of the leading global ETFs
For a second consecutive day, stocks gapped down but climbed their way back to close near session highs. After undercutting Wednesday's lows, four of the five major indices ended up on the day. The Dow Jones Industrial Average was the lone holdout, as it finished the day fractionally below the break even mark. The Nasdaq tacked on 0.8%, while both the small-cap Russell 2000 and the S&P MidCap 400 advanced 0.7%. The S&P 500 added 0.3%.
Market internals were ended the day on a bullish note. Volume jumped on the Nasdaq by 10.0% and on the NYSE by 10.8%. Advancing volume outpaced declining volume on both exchanges. By the closing bell the ratio of up volume to down volume was 1.4 to 1 on the NYSE and 3.0 to 1 on the Nasdaq. Institutions were in buy mode today as evidenced by the strong volume. The higher turnover in conjunction with the sharp reversal in the market, suggests institutional accumulation, and we would classify yesterday an accumulation day on Wall Street
Over the past three sessions, the iShares Russell 1000 Index ETF (NYSEARCA:IWB) has been consolidating just above its 200-day MA. Yesterday, for the second time in a row, IWB undercut this key moving average, but reversed to close near session highs. Further, the price action in IWB is beginning to show a bullish divergence with the Accumulation-Distribution Histogram. As Accumulation-Distribution has set a higher high, IWB has not, which suggests institutional accumulation. We are placing IWB on the watchlist. Trade details are posted for our subscribing members in the watchlist section of the newsletter.
Since November 25, 2011, the PowerShares Emerging Markets Sovereign Debt ETF (NYSEARCA:PCY) has been uptrending as the Accumulation-Distribution technical indicator has been in a downtrend. This divergence is considered bearish because a downtrending Accumulation-Distribution line suggests that the ETF is under selling pressure despite the higher price action. A move below the three day low of $27.05 could provide a short entry trigger for PCY. We are also placing this ETF on the watchlist. We are unaware of any inverse ETFs for emerging market sovereign debt. Details for this setup can be found in the watchlist segment of the newsletter.
Yesterday, via intraday alert, we cancelled the short setup in COW as we found shares hard to borrow. Our open positions performed well yesterday. Both IYT and IYZ undercut key moving averages levels and formed bullish reversal candles. EUO gapped up and consolidated for the entire session. Yesterday's broad market gap down and reversal, provides further evidence that bulls seem to be gaining control of the market. In a bullish move yesterday, the Nasdaq rallied and closed above the three day high. Furthermore, both the S&P 500 and DJIA are within mere points of taking out their respective three day highs. If we see follow through from both of these indices tomorrow, the market could see a sizeable move higher.
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: email@example.com.
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