The Wagner Daily - September 9, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks lost ground on Thursday amidst higher volume. All five major indices ended in the red. The small-cap Russell 2000 withstood the most damage as it fell 2.0%. The S&P MidCap 400 lost 1.3% while both the Dow Jones Industrial Average and the S&P 500 shed just over 1.0%. The Nasdaq showed the most resiliency as it contained losses at 0.8%.
Market internals were modestly bearish on Thursday. Volume rose by 10.2% on the Nasdaq but was only fractionally higher on the NYSE. However, declining volume was proportionally higher on the NYSE versus the Nasdaq. By the closing bell the spread ratio stood at 5.7 to 1 on the NYSE and 1.5 to 1 on the Nasdaq in favor of declining volume. Yesterday's internals suggest a distribution day on the Nasdaq. The picture is a little less clear on the NYSE because of the lighter volume on this index.
Over the past three sessions the iShares Dow Jones Transportation Average Index ETF has shown relative weakness to the broad market. As the S&P 500 has rallied to overcut its 20-day EMA, IYT has remained below this level. Yesterday, IYT formed a reversal candle as it turned lower just prior to touching its 20-day EMA. A move below the two day low of $80.23 could present a short entry trigger for this ETF. We are following IYT carefully for a potential short entry.
Yesterday, the PowerShares DB Crude Oil Double Short ETF (NYSEARCA:DTO) tested support of the September 1st swing low but reversed at this level and rallied to close near session highs. A move above yesterday's high of $60.31 could present a long entry trigger for this ETF. Alternatively, a move above the two day high of $61.86 also provides a possible long entry point for DTO. When a setup like this presents itself we will often take a half position at the first trigger and add to that position above the second trigger.
Despite the bearish action on Thursday we are hesitant to make a call for a wholesale selloff today. Although volume was higher on the Nasdaq it remained about the same on the NYSE as compared to Wednesday's level. Further, declining volume did not overwhelm advancing volume on the Nasdaq and the total volume on both indices fell well below the 50-day volume moving average. Normally we like to see reversal days accompanied by volume that is at or above the 50-day volume moving average. The lighter the volume, the weaker the signal and the more cautious we are with respect to taking on new trades.
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).
Â© 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.