The Wagner Daily - December 13, 2011
Concise technical analysis and picks of the leading global ETFs
Stocks took back most of Friday's gains but, once again, trade was light. However, the market did manage to recover into the close, and finished off of session lows. All five major indices ended the session in the red, with the S&P MidCap 400 and the small-cap Russell 2000 leading the decline. By the closing bell, midcap stocks slid 1.7%, while small-cap issues were off 1.6%. The S&P 500 dropped 1.5%. Both the Nasdaq and the Dow Jones Industrial Average fell 1.3%.
For the second time in as many days, market internals were mixed. Volume ended the day lower by 6.1% on the Nasdaq and 7.5% on the NYSE. The ratio of declining to advancing volume ended the session at 11.6 to 1 on the NYSE and 4.0 to 1 on the Nasdaq. For the second day in a row the light volume indicates that institutions are still on the sidelines.
Yesterday, on well above average volume, the Retail HOLDRS ETF (NYSEARCA:RTH) undercut its 20-day EMA, and rallied to form a reversal candle as it closed near session highs. The high of today's reversal candle could serve as a buy entry trigger for this ETF. Ideally, we would like to see RTH consolidate for a few days in a tight range before attempting a move higher. We are monitoring this ETF carefully for a possible buy entry.
Yesterday, on a big spike in volume, the S&P Consumer Discretionary Select Sector Index ETF (NYSEARCA:XLY) formed a distinct bullish reversal candle. A volume fueled move above the three day high of $39.49 could present a buying opportunity in this ETF.
Our open positions in both EUO and AGA performed well yesterday. However, given the lack of follow through in the market, we will be looking to protect gains should any signs of weakness appear in either ETF. If we see a gap up of these positions in the morning we will likely close both trades.
The market continues to send mixed signals, as it struggles to find a direction. For the third consecutive day the market ended the day at the polar opposite of where it closed the previous session. This type of whipsaw action makes for a difficult trading environment. However, it is encouraging that the broad market undercut, but held support at the three day low. It will be interesting to see what tomorrow brings.
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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