The Wagner Daily - May 11, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks rallied for a third consecutive day on Tuesday on strong trade. All five major indices posted solid gains and closed near session highs. The S&P MidCap 400 and the small-cap Russell 2000 led the move as they posted gains of 1.1% and 1.5% respectively. The Nasdaq tacked on just over 1% while the S&P 500 and Dow Jones Industrial Average improved by 0.8% and 0.6% respectively.
Market internals were bullish on Tuesday. Volume increased by 23.3% on the Nasdaq and by 8.3% on the Big Board. Further, advancing volume topped declining volume by almost 4 to 1 on both major indices. The 4 to 1 spread ratio marked the highest reading for this technical indicator on the Nasdaq since April 20th and on the NYSE since March 17th. Yesterday's action clearly involved institutional money and would be considered an accumulation day for the broad market. We will be watching carefully for a follow through day on Wednesday.
The PowerShares Dynamic Large Cap Value ETF (PWV) hit its trigger yesterday and we entered the trade. Our long position in SLV continued to perform well but could find resistance at the 50-day MA ($38.15 range). We wouldn't be surprised to see consolidation or a minor pullback in SLV near this level.
Over the past three sessions while the broad market has moved to higher ground, the iPath Dow Jones AIG Copper ETF (JJC) has remained trapped in a four day trading range. Further, while the S&P 500 easily held support between the 20 and 50 day moving averages, JJC has struggled at its 200-day MA. A rally back into resistance near its 20-day EMA could provide a quality short entry trigger for this ETF. Alternatively, a drop below the two day low of $52.65 could also present a shorting opportunity in JJC. We are monitoring JJC closely as it is a potentially promising short setup.
The PowerShares DB US Dollar Bull ETF (UUP) is showing all of the signs that a bullish reversal may be underway. With commodities and currencies, volume tends to be a more proximate and reliable indicator of a reversal than with stocks or other ETFs in general. A quick look at the weekly chart of UUP demonstrates this clearly. Notice that over the past two years every significant reversal off the lows in UUP has occurred within several weeks of a major spike in volume. A review of the daily chart of UUP suggests that a pullback into the 20-day EMA could provide a long entry trigger for this ETF. A morning gap down into support followed by a move back above the five minute high could present an ideal long entry point for UUP.
Over the past three sessions the market has been moving higher but an abundance of quality long setups have been noticeably absent from our nightly scans. This may in large part be due to sector rotation but is also common during the final stages of an extended rally. Yesterday's price action and internals were bullish and the major indices appear to be setting up for a move higher. Nonetheless, we remain cautiously positive as we believe the market would benefit greatly from several weeks of consolidation before possibly moving to higher ground.
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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