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Potential short setups in (EPU) and (ECH)- January 13, 2011

Jan. 13, 2011 8:56 AM ETECH, EPU
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The Wagner Daily - January 13, 2011
Concise technical analysis and picks of the leading global ETFs


The major indices posted healthy gains on Wednesday, but on mixed volume. Stocks gapped up at the open and consolidated at the highs for the remainder of the day. All five indices closed at their highest level since the market rally began in early 2009. The S&P 500 led the advance by posting a 0.9% gain on the session. Following closely, the small-cap Russell 2000 and the Nasdaq both finished the day 0.8% higher. The Dow Jones Industrial Average rose 0.7% while the S&P MidCap 400 posted a 0.6% advance.

Turnover finished mixed for the second consecutive day. Volume on the NYSE increased by 2.7%, while the Nasdaq saw volume decline by 1.3% in yesterday's session. Even though trade was somewhat muted, advancing volume outpaced declining volume on both indices. The advancing to declining volume ratio ended the session at 4.7 to 1 on the NYSE and 3.5 to 1 on the Nasdaq. Stocks continue to rally in the absence of serious volume.

IEV hit its stop yesterday and we exited the trade. We are removing THD from the watchlist as we have found it difficult to borrow shares. All other positions remain intact. PHO and PBW have been performing particularly well. PBW finished the day up 1.6% while PHO posted a 1.9% gain.

The iShares MSCI Chile Investable Market ETF (ECH) could provide a shorting opportunity with a rally back to the declining 20-day EMA. Prior to yesterday, ECH was under heavy selling pressure for six consecutive sessions. This selloff shattered a seven month trend line in this ETF. ECH found support just below the 20-week EMA (see weekly chart). Note that the horizontal resistance line found on the weekly chart corresponds almost exactly with the 20-day EMA. We will continue to monitor ECH as a possible short candidate.

The iShares MSCI All Peru Capped Index ETF (EPU) recently broke its trend line and lost support of the 20-day EMA and the 50-day MA amidst substantial volume. A rally back into resistance at these key moving averages, or a drop below the January 10th low of $46.85, may present an opportunity to short EPU.

Due to the recent whipsaw price action and accompanying gaps, we are inclined to wait for new setups to form rather than chase the market. We are wary that breakouts may not follow through because of light volume in the broad market.

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: deron@morpheustrading.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.

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