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Gold rolling over?

Pressured by an overnight jump in the U.S. dollar, stocks opened moderately lower yesterday morning. However, the major indices quickly stabilized, then merely drifted sideways to slightly lower throughout the rest of the day. Both the S&P 500 and Dow Jones Industrial Average finished 0.5% lower. The Nasdaq Composite lost 0.7%. The small-cap Russell 2000 and S&P Midcap 400 indices declined 1.0% and 0.8% respectively. The main stock market indexes finished around the bottom quarter of their intraday ranges.

Total volume in the NYSE rose 4% above the previous day's level, while volume in the Nasdaq eased 1%. The higher volume loss in the NYSE technically caused the S&P 500 to register a bearish "distribution day." Still, the preceding day was marked by late-day institutional accumulation. In both exchanges, turnover remained below 50-day average levels. Market internals were only slightly negative. In the NYSE and Nasdaq, declining volume marginally exceeded advancing volume.

As anticipated, the U.S. Dollar Bull Index (NYSEARCA:UUP) gapped above resistance of its February 2010 high yesterday, and should begin making another leg higher. The strengthening U.S. dollar has begun pressuring the prices of many commodities, which frequently move inversely to the direction of the dollar. Yesterday, SPDR Gold Trust (NYSEARCA:GLD), which tracks the price of the spot gold commodity, gapped down below short-term horizontal price support. This is shown on the daily chart below:

On the daily chart, it looks as though GLD has merely been in a choppy, sideways range for the past several months. However, the longer-term weekly chart shows that GLD is in danger of breaking below key support of its long-term uptrend line, which will occur if it convincingly falls below yesterday's low. The weekly chart of GLD is shown below:

One way to take advantage of a bearish reversal in gold is through selling short GLD. But another way is to buy the leveraged, inversely correlated Gold Double Short ETN (NYSEARCA:DZZ). Notice the daily chart of DZZ is basically the same as the daily chart of GLD turned upside down:

As with all leveraged, inversely-correlated ETFs, DZZ may underperform the actual spot gold commodity over the long-term. However, over the short to intermediate-term, it has been tracking pretty closely to the actual index it's supposed to follow. Regular subscribers should note our detailed trigger, stop, and target prices for the DZZ setup in "today's watchlist" below.

The iShares 7-10 Year T-Bond Index (NYSEARCA:IEF), which we were monitoring for potential buy entry on a breakout above its 200-day MA, sold off sharply yesterday. So did the rest of the fixed-income ETFs. Since it did not trigger for buy entry, no harm was done, but IEF is now being removed from our watchlist. The iShares Xinhua China 25 Index (NYSEARCA:FXI) remains on our watchist for potential buy entry on a breakout above its four-month downtrend line.

Open ETF positions:

Long - UUP
Short (including inversely correlated "short ETFs") - BRF
The commentary above is an abbreviated version of a daily ETF trading newsletter, The Wagner Daily. Regular subscribers receive daily updates on all open positions, as well as new ETF trade setups with detailed trigger, stop, and target prices. 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 morpheustrading.com.

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 deron@morpheustrading.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.

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Disclosure: Long UUP