The Wagner Daily - November 12, 2010
Concise technical analysis and picks of the leading global ETFs
Stocks closed down in Thursdays trading as all of the major indices fell. However, the market ended the day well above the worst intraday levels. After a sharp opening gap down, the market found its footing at10:00 am and rallied on light volume for most of the day. An impressive increase in volume fueled a rally into the close. The Nasdaq was the weakest of all the major indices, as it shed 0.9%. The Dow Jones Industrial Average closed down 0.7%, while the S&P 500 and the Russell 2000 both lost 0.4% on the session. The S&P MidCap 400 demonstrated relative strength to the other indices, as it gave back a modest 0.2% on Thursday.
Thursday's action saw a large divergence in turnover between the NYSE and the Nasdaq. Volume on the Nasdaq surged 33% day over day. By contrast, volume on the NYSE was down 13% for the session. Declining volume outpaced advancing volume on both indices. The ratio on the Nasdaq was 2.7 to 1, while the NYSE managed a somewhat better 1.6 to 1 ratio. The dramatic increase in volume on the Nasdaq was in large part a result of a poor earnings projection by Cisco (NASDAQ:CSCO).
Both the weekly and the daily charts of the PowerShares DB Base Metals Fund (NYSEARCA:DBB), provide evidence that this ETF may be headed for a reversal. Since the gap up on November 4th, DBB has been consolidating. But, for the past five days the candlestick patterns are showing indecision on the part of bulls and bears. Notice the long shadows formed on each of these days. In particular, the candlesticks formed on November 9th and 10th show that prices traded well away from their opening and closing points. These candles indicated that there is a great deal of excitement in the market. The excitement leads to significant fluctuation in price, but no clear trend. This candlestick pattern is known as a long legged doji, and often signals a reversal of the prevailing trend. The weekly chart of DBB also paints a picture that a reversal may be at hand. This ETF may be forming a double top. Further, just overhead is a zone of major resistance. Notice how the volume has picked up dramatically during distribution periods. All of these factors suggest the potential for a reversal in DBB.
The iShares MSCI Spain Index Fund (NYSEARCA:EWP), has broken the uptrend line for the first time since early June. It has also lagged the market considerably. After a strong gap up day on November 4th, EWP could advance no further. The next day it gapped down and has been deteriorating ever since. EWP is now trading below its 20-day and 50-day MAs. Today EWP bounced off support at the 200-day MA. EWP is showing signs of a shorting opportunity. A rally into the 20-day and/or 50-day moving averages provides a potential entry point to short EWP.
Over the past several days, there has been an increase in the number of ETFs that are weakening. Although the market trend may remain intact, shorting opportunities are becoming more prevalent.
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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