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Potential short setup in (XLF) - May 9, 2011

|Includes: Financial Select Sector SPDR ETF (XLF), XLV
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The Wagner Daily - May 9, 2011
Concise technical analysis and picks of the leading global ETFs


Stocks finished up on Friday but well off the session highs. Friday's improvement broke a four day losing streak for stocks but the market still closed lower for the week. Stocks began the day on strong footing but at 11:30 am the market reversed and sold off for most of the session. However some late day buying kept stocks in the black. The Nasdaq showed the most strength on the day as it advanced by 0.5%. The Dow Jones Industrial Average and the S&P 500 both improved by 0.4% while the small-cap Russell 2000 and the S&P MidCap 400 tacked on 0.3% and 0.2% respectively.

Internals ended the session mixed on Friday. Despite the positive showing on Friday, volume was light. Turnover fell by 8.9% on the Nasdaq and 8.3% on the NYSE. However, advancing volume was greater than declining on both indices. By the closing bell advancing volume had outpaced declining volume by a ratio of 2.3 to 1 on the NYSE and 2.6 to 1 on the Nasdaq. The combination of light volume and poor price action suggests a lack of institutional involvement in Friday's rally.

The SPDR S&P Select Sector Financial ETF (NYSEARCA:XLF) has been struggling below its down-trending 20-day EMA and 50-day MA since mid March. During this same period of time the major indices have reclaimed these key technical moving averages. This underperformance to the broad market suggests that a volume assisted move below the two day low of $15.98 could result in a sharp selloff in XLF.

While the broad market was met with sharp selling over the past five sessions, the Health Care Select Sector SPDR ETF (NYSEARCA:XLV) has been consolidating near its 52-week high. Further consolidation similar to that seen from late March through late April in this ETF could provide the "spring board" necessary to propel it to higher ground.

Our research revealed few quality setups this weekend. After last week's sharp selloff, the market likely needs a period of quiet consolidation to allow setups to develop.

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

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:

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