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Overbought Readings (QQQ) (SPY)- October 31, 2011

|Includes: PowerShares QQQ Trust ETF (QQQ), SPY
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The Wagner Daily - October 31, 2011
Concise technical analysis and picks of the leading global ETFs


Stocks closed mixed of Friday on light volume. High beta stocks showed relative weakness on the day as the small-cap Russell 2000, S&P MidCap 400 and Nasdaq finished lower by 0.6%, 0.3% and 0.1% respectively. The Dow Jones Industrial Average closed higher by 0.2% while the S&P ended fractionally up on the day.

Market internals ended mixed on the day. Volume fell dramatically on both exchanges. By the closing bell turnover on the Nasdaq was down by over 35.0% and on the NYSE by 30.0%. Advancing volume ended the session fractionally higher across the board. Market internals reacted much as would be expected as the market took a rest following Thursday's big accumulation day.

As we stated in Friday's newsletter we are of the opinion that the market may be approaching an overbought level. Our broad view of the market remains bullish but we also believe caution is now warranted on the long side of the market for the short run. A quick look at the NYSE, S&P 500 and Nasdaq support this reasoning. The NYSE is now approaching the neckline of the head and shoulders pattern that it formed over the summer. As you may recall, the NYSE was the index that provided us with the biggest clue that the market could be in for a big move lower back in late July. Notice that all three indices are at important resistance levels and very close to big reversal days that were the fuel for the recent bear market.

As stated earlier, we feel that caution is warranted for the moment. Although we have received a bullish signal in the market, we are still not seeing the emergence of new leadership stocks. We expect these stocks to being breaking out soon. However, until they do, we cannot eliminate the possibility that the market could reverse quickly at the current levels.

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

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:

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