The Wagner Daily - November 3, 2010
Concise technical analysis and picks of the leading global ETFs
The major indices gapped up significantly to begin Tuesday's session. The broad market attempted to rally further, but was met with selling pressure at the 2 day high. For the remainder of the day, the major averages consolidated and closed near the highs. Of the major indices, the small-cap Russell 2000 demonstrated the most relative strength, as it posted an impressive 2.0% gain on the day. Both the Nasdaq and the S&P MidCap 400 closed up 1.1%. The S&P 500 rallied 0.8% and came within .26 points of the October 25th high. The Dow Jones Industrial Average closed up 0.6%, but never seriously challenged the six day high.
The volume on Election Day was light. Day over day, turnover was about flat. The Nasdaq posted an insignificant volume increase of 1.1%, while NYSE volume dropped by a modest 6.0%. Advancing volume outpaced declining volume on the NYSE and the Nasdaq. The ratio on both indices was positive by a 3 to 1 margin. Although the major averages posted solid gains, market internals were lackluster. This is not unexpected, ahead of today's Federal Reserve announcement.
The iShares Russell Microcap Index (NYSEARCA:IWC), has been consolidating for 15 days, following a two month rally. After undercutting the 20-day EMA on November 1st, IWC gapped up and closed near the highs of the day. It made this move on above average volume. Above the October 25th high of $45.00, IWC provides a possible buy entry. We are officially placing IWC on our watchlist. For our regular members, the trade details are available in the watchlist segment of the newsletter.
The iShares JP Morgan USD Emerging Market Bond ETF (NYSEARCA:EMB), presents another potential buying opportunity. Including the gap-up day on October 25th, EMB has been consolidating for the past seven days, along its 20-day EMA. A rally above $113.18 would be a logical entry point for this ETF. We will be monitoring EMB as a potential purchase candidate.
The iShares MSCI Switzerland Index (NYSEARCA:EWL), is a very interesting technical setup. From October 26th until November 1st, this ETF significantly undercut the 20-day EMA, and appeared to be headed lower. Today however, EWL gapped up sharply on increasing volume. This ETF is once again trading near the four week high. EWL is now poised to rally above the mid October highs ($24.17). Should this resistance be broken, EWL could see its all time high. What is intriguing about this bullish setup, is the psychology behind the pattern. For five days EWL threatened to lose support, as it traded at or below the 20-day EMA. However, today's gap-fueled rally, has trapped many bears in the market. This generally results in a short squeeze as the bears seek to exit their positions quickly. A rally above $24.17 would put further pressure on the bears.
Overall, the recent uptrend remains intact. But, many contra-indicators are beginning to provide signs that the market is reaching a bullish extreme. The combination of Election Day results and the Fed announcement should provide an interesting day for traders.
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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