The Wagner Daily - August 19, 2011
Concise technical analysis and picks of the leading global ETFs
Thursday was a horrendous day on Wall Street as stocks took a beating on a surge in trade. All five major indices lost more than 3.5% with higher beta issues showing the most weakness. The small-cap RusseIl 2000 lost almost 6.0% while the S&P MidCap 400 and Nasdaq plummeted by 5.5% and 5.1% respectively. The S&P 500 dropped 4.5% and the Dow Jones Industrial Average fell 3.7%.
Thursdays plunge was aided by very weak market internals. As volume spiked by 43.0% on the Nasdaq and 63.5% on the NYSE, declining volume overwhelmed advancing volume across the board. The spread ratio ended the session at 33 to 1 on the NYSE and 41 to 1 on the Nasdaq in favor of declining volume. This combination of price action and volume clearly points to institutional distribution.
The iShares MSCI Malaysia Index ETF (NYSEARCA:EWM) has begun to lose some of its luster over the past several weeks. On August 7th and 8th this ETF undercut and lost support of its 200-day MA and its two year uptrend line. Since bottoming on August 8th EWM rallied back into these key marks and yesterday, on a dramatic increase in volume, EWM once again lost support of its 200-day MA. A move back below yesterday's low of $14.21 may provide a shoring opportunity in this ETF. We are placing EWM on the watchlist. Details of this trade are available to our members in the watchlist segment of the newsletter.
After attempting to reclaim its 20-day EMA on August 16th and August 17th the Vanguard REIT ETF (NYSEARCA:VNQ) formed a breakaway gap on a spike in volume yesterday. A volume fueled move back below yesterday's low of $53.65 could provide a short entry trigger for this ETF.
Following a five day bounce, bears once again asserted their dominance over the market. Yesterday's price and volume action suggests that fear is alive and well in the broad market. Market internals continue to erode and we maintain our bearish bias. Until the market proves us wrong we will continue to focus our research on the short side of 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: email@example.com.
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