The Wagner Daily - June 1, 2011
Concise technical analysis and picks of the leading global ETFs
Monday was a good day for Wall Street. Stocks advanced sharply on a massive, late day surge in volume. By the closing bell all five major indices were up by 1.0% or more. Technology led the advance. The small-cap Russell 2000 and the tech rich Nasdaq posted significant gains of 1.6% and 1.4% respectively. The Dow Jones Industrial Average, S&P 500 and S&P MidCap 400 all ended the day higher by just over 1.0%.
Market internals were decidedly positive on Monday. Volume skyrocketed on both major exchanges. On the Nasdaq turnover ended the session higher by 46.4% and on the NYSE it improved by an even more impressive 60.0%. Advancing volume exceeded declining volume by factor of 4.3 to 1 on the Big Board and 2.1 to 1 on the Nasdaq. The combination of positive price action and sharply higher volume points to significant institutional participation in Monday's rally. Based on this data Monday would be accurately classified as an accumulation day for the market.
For the past month the iShares Dow Jones Transportation Index ETF (BATS:IYT) has been consolidating along its 20-day and 50-day moving averages. During this timeframe IYT has also formed a sequence of lower highs resulting in an interim downtrend line. Ideally we would like to see IYT consolidate for several days to several weeks in a very tight range. This type of price action followed by a volume fueled move above the downtrend line could present a buying opportunity in this ETF.
The PowerShares DB Agricultural ETF (NYSEARCA:DBA) has been struggling to regain its 20-day EMA since mid March. A volume assisted move back below the three day low of $32.63 could present a shorting opportunity in this ETF.
With yesterday's sharp price move in the market, several of our short term momentum indicators suggest the market may be close to an overbought state. Consequently we are not inclined to enter new long positions as we do not consider it prudent to chase the market. Should the market be posturing to set new highs, we prefer to wait for a pullback followed by consolidation to enter new long positions.
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: firstname.lastname@example.org.
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.
Charts created by TradeStation (tradestation.com).
© 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.