The Wagner Daily - October 29, 2010
Concise technical analysis and picks of the leading global ETFs
The major indices gapped up modestly to begin Thursday's session, but were met with strong selling pressure immediately. The selloff continued until 12:30 pm, when the market "caught a bid". Stocks then rallied "listlessly" into the close. The Nasdaq demonstrated relative strength to the broader market, as it found support at the highs of the previous two trading sessions. On the day, the Nasdaq and S&P 500 posted gains of 0.2% and 0.1% respectively. The small-cap Russell 2000 was the big loser, as it shed 0.5%. The blue-chip Dow Jones Industrial Average slipped 0.1%, while the S&P MidCap 400 finished flat for the session. Advancing Sectors included, Health Care +0.5%, Consumer Discretionary +0.4%, Consumer Staples +0.3%, Telecom +0.3%, Utilities +0.2% and Technology +0.1%. Declining sectors included: Industrials -0.3%, Materials -0.1%, Financials -0.1. The Energy Sector remained unchanged.
Volume eased slightly on both exchanges. Turnover on the Nasdaq and the NYSE was down 0.8% and 0.7% respectively. Advancing volume to declining volume was at virtual par in the session. Overall, Thursday's trading was reflective of the recent indecision clouding the market. There has been an "apparent" absence of institutional involvement over the last five trading sessions. The market has been mired in a "tug of war", between the bears and bulls, with a victor yet to be determined.
A new ETF was introduced the market today. Van Eck launched Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX). This is not surprising given the recent headlines directed at the "strategic importance" of rare earth metals. Currently, China controls approximately 97% or rare earth production worldwide.
After a major rally, which began in June 2010, the Rydex CurrencyShares Swiss Franc Trust (NYSEARCA:FXF), has recently pulled back into its 50-day MA. This is the first "touch of the 50-day MA since late June, 2010. It is also noteworthy, that FXF "filled the gap", formed on September 22nd. Also, the 50-day MA coincides with a .382% Fibonacci retracement, drawn from the July 27th low to the October 14th high. A rally above the three day high on increasing volume, could provide a buy entry for this ETF.
The iShares MSCI Chile Index Fund (BATS:ECH), has been consolidating sideways, into the 20-day MA, for the past 30 days. After testing the 20-day MA three times in the past two weeks, this ETF rallied above a very "tight" eight day range. It is poised to potentially set new highs. An ideal entry for ECH, would be a pullback to $74.50. Notice that ECH had a "false breakout day" on October 15th. It is now breaking out again. This is a good technical signal following a "false breakout". It provides further confirmation that ECH remains bullish.
Since a false breakout on October 10th, The iShares Dow Jones US Telecom (BATS:IYZ), has been consolidating in a tight range along the 20-day MA. After a "gap down" below the 20-day MA on October 19th, IYZ immediately rallied back into the trading range. This is a clear example of a "shake out" day. A break above the 3 day high on higher than average volume, provides a potential long entry point for IYZ.
The majority of setups remain bullish. The longer the market consolidates, the more likely the next move is up. Until the market provides confirmation of a trend reversal, it is prudent to stay with the trend. Markets are not rational or irrational, they just are.
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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