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What a difference a day makes - July 12, 2011

|Includes: iShares MSCI Italy Capped ETF (EWI), IYT
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The Wagner Daily - July 12, 2011
Concise technical analysis and picks of the leading global ETFs



Commentary:

Monday was a very difficult day for Wall Street. Stocks got pummeled yesterday as volume increased. All five major indices closed decisively lower and near session lows. The market was under duress for most of the day. The small-cap Russell 2000, S&P MidCap 400 and Nasdaq slid by 2.3%, 2.2% and 2.0% respectively. The S&P 500 met a similar fate as it dropped by 1.8%. Although hardly respectable, the Dow Jones Industrial Average fell a lesser 1.2% yesterday.

Market internals were quite bearish on Monday. Volume rose by 10.3% on the Nasdaq and 8.2% on the NYSE. Further, the spread between declining and advancing volume was huge. On the NYSE the ratio of declining to advancing volume ended the session at a stunning 30 to 1. The Nasdaq did not fare much better as the spread ratio finished at 11 to 1 in favor of declining volume. The combination of declining prices and decidedly negative internals points directly to significant institutional distribution yesterday.

Yesterday, the iShares MSCI Italy Index ETF (NYSEARCA:EWI) gapped down to break both its 3-day low and recently formed uptrend line. EWI now offers significant downside potential on a bounce back into resistance near the downtrend line. Another factor contributing to EWI's weakness is the down trending 200-day MA. It is generally ill-advised to purchase securities that are trading below a down trending 200-day moving average. We are carefully monitoring EWI for a potential short entry into resistance.

During the recent eight day uptrend, the iShares Dow Jones Transportation Index ETF (BATS:IYT) showed excellent relative strength as it rallied to a new 52-week high. Over the past three days this ETF has reversed with the market but now is trading near support of its 20-day EMA and 50-day MA. An undercut of this key support area followed by several days of consolidation may present a buying opportunity in this fund.

Given yesterday's follow through selloff, it is clear that the market has met significant resistance near the 52-week highs. European ETFs are under major duress as they have for the most part lost support of their respective 200-day moving averages. When markets turn abruptly it often becomes quite difficult to find either long or short trades that provide reasonable risk/reward entries. Consequently, it prudent to reduce share size and/or to avoid entering new positions until the volatility subsides.


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.



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