The Wagner Daily - November 18, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks closed down sharply for a second consecutive day on higher trade. All five exchanges closed lower with the Nasdaq showing the most weakness. By the closing bell, the tech-rich index had shed 2.0%. The S&P MidCap 400 followed closely as it dropped 1.9%. The S&P 500 slid 1.7% while the small-cap Russell 2000 fell 1.5%. The Dow Jones Industrial Average showed the most resiliency on the day as it contained losses to 1.1%.
For a second consecutive day market internals came up bearish. Volume climbed by 13.5% on the Nasdaq and 8.8% on the Big Board. Declining volume once again overpowered advancing volume across the board. The ratio of declining to advancing volume ended the day at 11.4 to 1 on the NYSE and 4.3 to 1 on the Nasdaq. Thursday's market internals point to a second consecutive day of institutional distribution. Further, yesterday was also a bearish follow through day, and the sixth distribution day on the S&P 500 in the last twenty days. The Nasdaq is has seen four distribution days in the same timeframe. Given the recent build up in distribution days and the lack of bullish follow through in recent breakouts our market timing model has shifted to a sell signal.
We are removing XRT from the watchlist because the setup is no longer valid given the recent selling pressure in the market. However, XRT is still showing relative strength amidst the market weakness and as long as it holds support at the 50-day MA, it still provides an opportunity on the long side. XRT must now stabilize and consolidate in order to establish a new setup for a long entry. We will continue to monitor this ETF closely.
In a recent newsletter we stated that GLD could offer a possible long entry on a pullback into its 20 and 50-day moving averages. Yesterday, on a major spike in volume, GLD sold off sharply and is now clinging to support of the 50-day MA. GLD must hold support here or it will likely drop quickly and test the 200-day MA. If GLD is able to hold support at the 50-day MA, it will likely take a week or two for a potential long entry to develop. It appears less likely that GLD will be able to hold support at the current levels given yesterday's sharp sell-off.
Despite the fact that the market is clearly beginning to struggle it is important to keep in mind that the type of price action we are seeing is not at all unusual for first thrust reversals. This market is capable of turning on a dime as has been evident lately. There's no question that our bullish bias is under duress however, it would be imprudent to jump to the bear camp without further confirmation.
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.
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.