Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

iShares Real Estate (IYR) showing relative strength- June 11, 2010

|Includes: iShares U.S. Real Estate ETF (IYR)

Trapping the bears who took advantage of the previous afternoon's weakness, stocks roared back with a strong round of broad-based gains yesterday. The major indices gapped higher on the open, drifted sideways into mid-day, then made another leg higher in the afternoon. The benchmark S&P 500 Index scored a 3.0% gain. Both the Nasdaq Composite and Dow Jones Industrial Average jumped 2.8%. The small-cap Russell 2000 and S&P Midcap 400 indices zoomed higher by 3.5% and 3.2% respectively. Completely opposite of the prior day's session, all the main stock market indexes closed at their intraday highs.

Curiously, one key element missing from yesterday's rally was the presence of higher turnover. Total volume in the NYSE was approximately 12% lighter than the previous day's level, while volume in the Nasdaq slipped 5%. With such large percentage gains, one might have expected the rally to be driven by institutional accumulation, but slower trade across the board tells us mutual funds, hedge funds, and other institutions were not really interested in participating. Nevertheless, market internals were extremely strong. Advancing volume in the NYSE destroyed declining volume by a huge margin of 40 to 1. Every industry sector on our daily watchlist closed in positive territory yesterday, which wasn't surprising given the large gains across the board.

Yesterday's rally caused our long position in iShares Thailand Index (NYSEARCA:THD) to gain 2.6% and confirm the breakout above its intermediate-term downtrend line. Showing clear relative strength to the broad market, THD is still one of the very few ETFs of the more than 300 we monitor that is trading above its 20, 50, and 200-day moving averages. If the U.S. stock market continues to recover, THD should show leadership and move to a new 52-week high in the near to intermediate-term. But unfortunately for the bulls, we're still not seeing much in the way of other buyable ETF chart patterns. One exception is iShares Real Estate Index (NYSEARCA:IYR), which recently formed a near-term double bottom at its 200-day moving average, is trading above its 20-day EMA, and is within striking distance of moving back above its 50-day MA. Take a look:

IYR

A rally above the $51 area is a potential trigger point for buy entry, as that would correlate to a rally above its prior "swing high" from May 28, as well as convergence of its 50-day MA. Still, as with all entries on the long side of the market right now, tight stops are recommended in order to protect against failed breakouts.

After such a significant decline in the broad market over the past month and a half, it's easy to get encouraged by a 3% gain in the S&P 500. However, it's important to remember that such substantial percentage moves have not been uncommon since the recent stock market decline began. Specifically, since the late April highs in the S&P, the index has had nine days of moves that resulted in a gain or loss of more than 2% (five down, four up). As such, it's pointless to read much into yesterday's advance, as stocks are still rebounding off their recent lows. Furthermore, the lighter volume was discouraging. The major indices may again be attempting to find their footing on a short-term basis, just as they did in late May, but the intermediate-term trends clearly remain "down." Very near-term traders may find select opportunities in some of the ETFs with relative strength, but our overall plan is to wait for weak ETFs to forge a substantial bounce into major overhead resistance levels, such as their 50-day moving averages, then initiate new short positions.


Open ETF positions:

Long - THD, UNG
Short (including inversely correlated "short ETFs") - GDX
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.

Charts created by TradeStation (tradestation.com).

© 2002-2010 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.


Disclosure: Long THD, Long UHD, Short GDX