The Wagner Daily - June 21, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks closed higher across the board on Monday but on very light trade. Despite Monday's advance, the broad market has now been caught in a trading range for approximately one week. Higher beta stocks led the advance as the small-cap Russell 2000 and the S&P MidCap 400 tacked on solid gains of 1.2% and 0.8% respectively. The Dow Jones Industrial Average claimed a 0.6% improvement while the S&P 500 and the Nasdaq both advanced by 0.5%.
Monday's internals significantly muted the day's positive price action. Volume was down dramatically across the board. On the Nasdaq turnover plummeted by 32% and on the NYSE it fell by 44%. Advancing volume outpaced declining volume by 2.3 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. The complete absence of volume suggests that institutions did not participate in the rally and therefore we would not consider yesterday to be an accumulation day on Wall Street.
During the recent pullback in the market the Pharmaceutical HOLDRS ETF (NYSEARCA:PPH) has exhibited significant relative strength to the broad market. While market pulled back to its 200-day moving average, PPH barely undercut its 50-day moving average. A volume fueled move back above the two day high of $70.58 could provide a short term buying opportunity in this ETF. Although we are not eager to enter the long side of the market, the recent strength demonstrated by PPH makes it a relatively low risk play.
The iShares MSCI Thailand Investable Market Index ETF (NYSEARCA:THD) is currently testing support of its long term trendline dating back to March 2009. Over the past two weeks THD has been consolidating along its trendline for the most extended period since the rally in this ETF began in March 2009. On June 14th THD gapped up and appeared to be headed higher but was quickly driven back to the trendline. If THD is unable to rally off the current level and reverse above its intermediated downtrend line, its next move could be a return to support at the previous swing low of $56.85.
In our opinion, the market is at a crossroads and contemplating its next big move. The lighter day over day trade is partially understandable given that Friday was a triple options expiration day. However, yesterday's volume was well below its 50-day moving average on both major exchanges. As discussed, the poor volume performance suggests an absence of institutional involvement on the long side of the market. If the market cannot find sound footing over the next several sessions the odds will begin to favor another leg down. For the moment we believe it is prudent to maintain minimal exposure to the 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: 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.