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Short setup in the China Small Cap Index (HAO) - January 20, 2011

Jan. 20, 2011 9:28 AM ETEZA, HAO-OLD
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The Wagner Daily - January 20, 2011
Concise technical analysis and picks of the leading global ETFs


Wednesday was a very difficult day for the market. With the exception of the Dow, the major indices took a pounding and closed near the lows of the session. The Dow Jones Industrial Average managed to close near the middle of its trading range, as it shed a modest 0.1% yesterday. The other four indices finished down by one percent or more. The S&P 500 was the best of the rest, as it fell 1.0%. The Nasdaq, S&P MidCap 400 and the small-cap Russell 2000 plummeted 1.5%, 1.7% and 2.5% respectively. Over 400 stocks finished the session lower by 4% or more.

Market internals ended the day mixed, but the day's action was markedly negative. Turnover rose by 5% on the Nasdaq, while it fell by 6% on the NYSE. Declining volume overwhelmed advancing volume on both indices. The ratio of down to up volume was 9 to 1 on the NYSE and 6 to 1 on the Nasdaq. Despite the drop in volume on the NYSE, Wednesday would be properly categorized as a distribution day for the market.

The iShares MSCI South Africa Index ETF (EZA) sliced through support on Wednesday on a big spike in volume. A move below yesterday's low may provide a shorting opportunity in this ETF. Yesterday's low coincides closely with the 20-week MA. A volume fueled move below this key support level could result in a drop to the 200-day MA.

In Wednesday's action, The Guggenheim China Small Cap Index (HAO) tested support at the seven day low ($30.60), but managed to hold this key mark. Since November, this ETF has been setting a sequence of lower highs and lower lows. A move below yesterday's low of $30.53 could provide a short entry trigger for HAO. We will be monitoring HAO closely for a possible short entry.

Given the abrupt move in the market yesterday, we have tightened the stops on all of our positions. Most trade setups that we have been following were nullified by Wednesday's bearish reversal. Caution is warranted due to Wednesday's negative market action.

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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