The Wagner Daily - January 12, 2011
Concise technical analysis and picks of the leading global ETFs
All five major indices closed higher on Tuesday on mixed volume. The S&P 500, the S&P MidCap 400 and the small-cap Russell 2000 all ended the session up by 0.4%. Both the Dow Jones Industrial Average and the Nasdaq followed suit, by posting 0.3% gains on Tuesday. Despite the positive day, the major indices remain mired in a seven day trading range. The longer the market consolidates near the highs, the more likely the next significant move will be up.
Market internals ended the session mixed. Volume on the Big Board fell 2.4%, while it increased by 2.2% on the Nasdaq. Advancing volume outperformed declining volume on both major indices. The ratio was a positive 1.8 to 1 on the NYSE and a plus 1.4 to 1 on the Nasdaq. Light volume on the NYSE prevented yesterday from being classified as an accumulation day. Still, Tuesday was a good showing for the broad market.
The Market Vectors Steel ETF (NYSEARCA:SLX) undercut its 20-day EMA two days ago in what we refer to as a shakeout move. This type of price action generally serves to "sweep the stops" just below a key support level, prior to a reversal move. This is precisely what happened in SLX as yesterday; this ETF formed a big reversal candlestick. A rally back above the January 5th high of $74.62 could provide a buying opportunity in SLX. For this potential setup to follow through, an increase in volume is likely needed. We are closely monitoring SLX as a buy candidate. As always, an intraday alert will be sent to our subscribers should we decide to take a position in this ETF.
The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) has been consolidating at its 52 week high for the past three weeks. Yesterday, on a burst of volume, this ETF rallied to a new 52-week high before pulling back into support. A move back above yesterday's high of $95.74 could provide a buy trigger for IBB. If volume holds up and market conditions cooperate, IBB could see a healthy rally. We like this setup and are monitoring it closely.
The recent range bound trading has provided opportunities on both the long and short side of the market. Identifying ETFs with relative strength (long opportunities) and relative weakness (short opportunities), is the key to profitability in a choppy trading environment. Based on yesterday's price action, the market appears poised for a breakout.
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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