The Wagner Daily - January 27, 2012
Concise technical analysis and picks of the leading global ETFs
Stocks fell on Thursday amidst quicker trade. The market gapped higher at the open but stocks struggled for most of the day, and by the close, had pulled the major averages near session lows. All five major indices fell on the day. The S&P MidCap 400 showed the most relative weakness as it slid 0.7%. Close behind was the S&P 500, which fell 0.6%. The tech-rich Nasdaq slid 0.5%, while the small-cap Russell 2000 drifted 0.3% lower. The Dow Jones Industrial Average, bolstered by gains in MMM and CAT, showed the most resiliency on the session as it closed lower by a modest 0.2%.
Internals were bearish on Thursday. Volume ticked higher on the Nasdaq by 4.4% and on the NYSE by 4.3%. Declining volume topped advancing volume by a factor of 2 to 1 on both exchanges. Yesterday's higher volume combined with weak price action and bigger down volume, all add up to a distribution day on Wall Street.
Yesterday, on above average volume, the ProShares UltraShort Euro (NYSEARCA:EUO) gapped below its 50-day MA but recovered to close near session highs. With this "undercut" in place, EUO is now positioned for a possible recovery. Although it is too early to make the call for a long entry in EUO, yesterday's price action has put the first piece of a potential long setup in place. What we will be looking for now is price stabilization at the current level and the formation of a setup that will give us the proper reward to risk ratio, in order to enter the trade. The pink candlesticks represent the type of price action that would provide an opportunity for a potential long entry. An "inside" candle followed by a false breakout would be just what the doctor ordered. Then, a move above the high of the false breakout candle would give us a legitimate entry.
Yesterday, on a significant spike in volume, the SPDR Bank ETF (NYSEARCA:KBE) formed a bearish "engulfing" candle, as it gapped-up but quickly reversed to close below Wednesday's low. Even though KBE held support of the twelve day low and both its 20-day and 200-day MAs, this type of price action is not a good sign for those bullish on KBE. Further, this is the first attempt KBE has made to reclaim the 200-day MA and selling at this level would not be unusual. If KBE breaks support at yesterday's low of $21.02, it could easily drop to support of the former downtrend line (Coincides with 50-day MA).
We exited our long position in IYR yesterday, yielding a sizeable 4.1% gain. IYR gapped up and rallied to within 18 cents of our target, and we felt it was prudent to exit the trade based on those circumstances. Shortly after we exited the position, IYR sold off for most of the day, and closed below our exit price. We remain in IYT, IYZ, XLP and DVY. Of the four, IYZ is showing the most relative weakness. We wouldn't be surprised if it takes out its stop but we can always re-enter if it makes sense to do so.
Yesterday's selling on higher volume is a possible early signal that the market may soon take a rest. Given that today was the first distribution day in the market since late December, a moderate correction may be overdue.
The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.
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.
DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.
Charts created by TradeStation (tradestation.com).
Â© 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.