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Watch The Swing Low (EWJ) - November 10, 2011

|Includes: iShares MSCI Japan ETF (EWJ)
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The Wagner Daily - November 10, 2011
Concise technical analysis and picks of the leading global ETFs


Stocks were pummeled on Wednesday on a significant spike in volume. All of the major indices sank more than 3.0%. High beta issues led the carnage as the small-cap Russell 2000 and the S&P MidCap 400 plunged 4.8% and 4.3% respectively. The Nasdaq shed 3.9% while the S&P 500 and the Dow Jones Industrial Average dropped 3.7% and 3.2% respectively. All stocks on the DJIA closed down on the session. The selling was dramatic and broad based.

Market internals were decisively bearish yesterday. Volume skyrocketed on the Nasdaq by 16.0% and on the NYSE by almost 24.0%. In addition, declining volume overwhelmed advancing volume by a ratio of 66 to 1 on the NYSE and 18.7 to 1 on the Nasdaq. Institutions were clearly led the day's selling activity. Yesterday was an obvious distribution day for the broad market. Given the magnitude of yesterday's sell off, we are changing our market bias from bullish to neutral.

XRT traded within pennies of its stop of 51.27 and given the market action yesterday, we may look to lighten up on the position should we see a bounce. PPH is still trading well above its stop of 66.63 but if the market sees further selling pressure PPH could also hit its stop. We will be watching the price action carefully at the open on Thursday and make our decisions with respect to each of these trades then.

We've stated over the past several days that we must avoid further distribution days and that we need to hold the November 1st swing lows established on the major indices. If we lose these swing lows then the current rally could easily reverse. A new swing low following the lower highs just set, could signal a trend reversal. A brief review of the major indices below demonstrates this clearly.

In a recent Newsletter we stated that the iShares MSCI Japan Index ETF (NYSEARCA:EWJ) was in danger of losing a key support level ($9.17). A move below this level could provide a shorting opportunity in this ETF.

Although we rarely reference news, the situation in Europe is systemic and there is little doubt that institutions reacted decisively to the information. Wednesday marked the fourth distribution day since the bullish confirmation day occurred on October 18th. If we get a fifth distribution day in the next few days, then that would likely put the current rally in jeopardy. However, it is important to not overreact and instead allow the market to sort the details out. The biggest moves higher generally occur in the midst of very negative news.

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:

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.

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