The Wagner Daily - August 8, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks closed mixed on Friday after a seesaw day of trading on heavy trade. The intraday swings in the market were violent. The major indices were down between 2% to 4 % and some were up as much as 1.5% during the session. Small cap and technology issues were hit the hardest as the Nasdaq, small-cap Russell 2000 and the S&P MidCap 400 dropped 0.9%, 1.7% and 1.7% respectively. The S&P 500 closed fractionally lower while the Dow Jones Industrial Average managed to swim against the trend and post a 0.5% gain.
Market internals were once again negative despite modest gains on the DJIA. Volume climbed by 14.6 % on the Nasdaq and 27.0% on the Big Board. Declining volume held the upper hand as the spread ratio ended the session at 1.7 to 1 and 3 to 1 in favor of down volume on the NYSE and Nasdaq respectively. Given the negative internals, we would classify Friday as a distribution day on the Nasdaq, Russell 2000 and S&P MidCap 400.
Although we generally refer to the S&P 500 and the Nasdaq as broad indicators of the market's health, we have chosen recently to review the NYSE in this capacity. We have been referencing the NYSE because it formed a very compelling and visually symmetrical head and shoulders pattern and met virtually every criteria we look for in a high probability reversal pattern. As we had anticipated, the NYSE found support on Friday at its 200-period MA on the weekly chart. This helps to explain much of the choppy action in the market yesterday. However, as of this writing, both the S&P and Nasdaq futures are down 2.35%. If this weakness continues into the opening bell, then the NYSE will likely test Friday's low. If we break Friday's low, the NYSE could very well fulfill the predicted drop of the head and shoulders pattern tomorrow or Tuesday.
Both the ProShares Ultra Financials ETF (NYSEARCA:UYG) and the SPDR S&P Emerging Markets Small Cap ETF (NYSEARCA:EWX) appear to be solid shorting opportunities into the next bounce. Notice that both ETFs are in clear downtrends, have lost key horizontal support levels are trading well below all of their respective moving averages. A move back near $56.00 for UYG and $51.00 for EWX may provide shorting opportunities in these ETFs.
Leadership has been all but been drained from the market. AAPL and PCLN are still standing, but they are the exception. However, both of these leaders are beginning to fall under selling pressure as they have begun to drop with the market. With virtually no leadership left in the market our focus has shifted to identifying short opportunities when the market bounces.
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: email@example.com.
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