The Wagner Daily - August 15, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks moved modestly higher on Friday on very light trade. All the major indices ended the session up with the Dow Jones Industrial Average leading the move. By the closing bell the blue chip index tacked on 1.1%. The Nasdaq added 0.6% while both the S&P 500 and S&P MidCap 400 rose 0.5%. The small-cap Russell 2000 was the session laggard as it posted a small 0.3% gain.
Market internals were both mixed and unimpressive. Volume plummeted by 29.0% on the Nasdaq and the NYSE. The spread ratio fell slightly in favor of advancing volume by a ratio of 1.4 to 1 on the Nasdaq and 1.5 to 1 on the NYSE. The substantial drop off in volume makes Friday's rally suspect. There is little doubt that institutional buyers were absent from the market on Friday.
The ProShares Ultrashort Financials ETF (NYSEARCA:SKF) pulled back and held support of its 20-day EMA on Friday after selling off briskly at the open. This inverse ETF showed excellent relative strength on Friday as it rallied with the market. Further, the recent pullback in SKF has occurred on declining volume. SKF is in a distinct trend reversal and we are monitoring it as a potential long candidate. Ideally we would like to see SKF move sideways and consolidate for a few days before potentially moving higher.
On Friday the iShares MSCI Chile Investable Market Index ETF (NYSEARCA:ECH) formed a reversal candle as it found resistance at the 50% Fibonacci retracement level (drawn from July 7th swing high to August 8th swing low). An ideal short setup would be for ECH to consolidate for a few days, retest the high of yesterday's reversal candle and overcut the 20-day EMA before possibly resuming its current trend lower. We have ECH on the radar as a possible short candidate.
Friday provided the least volatility that we have seen in several weeks. Both volume and price action contracted significantly on Friday but the VIX (NYSEARCA:VXX) is consolidating above key support of the 20-day EMA. Our bias is still on the short side of the market and therefore we are actively scanning for bearish setups. Via an intraday alert on Friday we entered a long position in BZQ (Inverse Brazil ETF). Trade details are available in the open positions segment of the newsletter.
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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