Short entry in Gold Miners ETF (GDX) - May 26, 2011
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The Wagner Daily - May 26, 2011
Concise technical analysis and picks of the leading global ETFs
Commentary:
Stocks moved modestly higher on Wednesday on increasing trade. All five major indices closed in the black but a late surge in selling left stocks off the session highs. The small-cap Russell 2000 and the S&P MidCap 400 saw the most day over day improvement as they tacked on 1.1% and 0.7% respectively. The Nasdaq rose by 0.55% on the session while both the S&P 500 and the Dow Jones Industrial Average advanced by 0.3%.
Market internals were solid yesterday. Volume on both exchanges ended the session higher. On the Nasdaq trade increased by 2.3% while on the NYSE it climbed by a more robust 9.7%. Advancing volume controlled the action on Wednesday. The spread ratio (advancing volume/declining volume) finished the day at 1.4 to 1 on the NYSE and 2.1 to 1 on the Nasdaq. Given the positive price action and solid internals we consider Wednesday as an accumulation day for the market.
Via an intraday alert we entered short position in the Market Vectors Gold Miners ETF (GDX) yesterday. Since its precipitous drop in the first half of this month, GDX has spent the last six sessions rallying its way back into resistance at the 200-day moving average. Although we anticipate an over-cut of this key mark, we still expect the 200-day MA to present significant resistance and foil any further advance by GDX. Notice that the high water mark for GDX matched precisely with the 200-day moving average. For those of you unable to short GDX, the PowerShares DB Gold Short ETN (DGZ) could serve as a reasonable proxy. Please note that DGZ is the inverse gold ETF and not an inverse gold miner ETF. Trade details for GDX are available to our subscribing members in the watchlist section of the newsletter.
The iShares MSCI Japan Index ETF (EWJ) lost support of its 200-day MA in mid March of this year. Since that time this ETF has twice attempted to reclaim this key moving average without success. On May 13th EWJ lost support of the 200-day MA for the second time since March and now appears in the midst of a bounce back toward resistance. A rally into the declining 20-day and 50-day moving averages could present a quality short entry trigger for this ETF.
The market rebounded solidly from its oversold condition yesterday. Nonetheless, the major averages have a lot of work to do in order to repair the damage inflicted on the market on May 23rd. The "breakaway" gap formed that day should present formidable resistance for any attempted rally back above the 50-day moving average for the broad market.
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.
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