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Potential breakout entry in Crude Double Short ETF (DTO) - May 24, 2011

May 24, 2011 8:40 AM ETDBA, DTO
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The Wagner Daily - May 24, 2011
Concise technical analysis and picks of the leading global ETFs


Yesterday was a difficult day on Wall Street. Stocks were down sharply but on mixed trade. Price action was decidedly bearish as all five major indices closed in the red by more than 1%. The small-cap Russell 2000 led the plummet as it fell 1.9% yesterday. The Nasdaq and the S&P MidCap 400 did not fare much better as both shed 1.6%. By the closing bell the S&P 500 and the Dow Jones Industrial Average lost 1.2% and 1.1% respectively.

Market internals were not good but did end the day mixed. Volume on the Big Board fell almost 14% while it finished higher on the Nasdaq by 1.2%. Declining volume overwhelmed advancing volume on both exchanges. The session ended with the declining volume to advancing volume ratio at 9 to 1 on the NYSE and 4.5 to 1 on the Nasdaq. Bears clearly had command of this technical indicator. Nonetheless, we cannot classify Monday as a distribution day for the broad market due to weak trade on the NYSE. The Nasdaq did however experience distribution yesterday.

Both our long position in UUP and our short position in IWM performed well yesterday. We sold approximately two thirds of our position in UUP into strength and covered two thirds of our position in IWM into weakness. Both trades netted solid gains. We felt it was wise to take some profits in both trades due to the size of yesterday's gap down in the market. Our subscribing members should refer to the open positions and closed position segments of the newsletter for full trade details.

The PowerShares DB Agricultural ETF (DBA) is once again testing major support near $31.95. Yesterday was the third time in as many months that this ETF has tested this key mark. We see two potential shorting opportunities for this ETF. The first possible entry would be on a rally back into resistance at the 20-day EMA ($32.90). The second potential entry would be a move by DBA back below support at $31.95. From a risk/reward standpoint we consider the first setup as the better of the two.

The PowerShares DB Crude Oil Double Short ETF (DTO) has been consolidating for the past 13 days as it has set a sequence of higher lows. A quick glance at the hourly chart of DTO also shows that each pullback has "tightened" as this ETF attempts to move back above resistance just above $49.00. A volume fueled move above yesterday's high of $49.23 could provide a long entry trigger for DTO. We are watching this pattern closely for a potential buying opportunity in this ETF.

The market continues to struggle. If not for light trade on the NYSE, yesterday could have been a complete disaster for the market. Long setups have been virtually nonexistent in our daily scans. Yesterday's gap down places even more weight on an already heavy market. If we see a significant distribution day tomorrow, the potential increases for a sizeable correction in the broad market. Nonetheless, caution on the short side is warranted given the extended nature of the 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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