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Quiet consolidation day- June 17, 2010

|Includes: The United States Oil ETF, LP (USO)

Stocks followed up Tuesday's breakout with an uneventful session of consolidation that caused the major indices to close near the flat line. Both the Nasdaq Composite and Dow Jones Industrial Average were unchanged. The S&P 500 edged 0.1% lower. Breaking their recent winning streaks, the small and mid-cap indexes took a breather; the Russell 2000 and S&P Midcap 400 Index registered identical losses of 0.4%. All the main stock market indexes closed just above the middle of their intraday ranges, which didn't mean much considering it was a range-bound day of trading.

Total volume in the NYSE was on par with the previous day's level, while volume in the Nasdaq decreased 15%. Lighter volume on a consolidation day that follows a sharp rally is healthy, at it means the bears did not immediately sell into strength of the move. Nevertheless, bear in mind that turnover remained below 50-day average levels, even as stocks ripped several percent higher in the prior session. The least convincing element of the broad market's rally off the May lows continues to be the lack of solid, higher than average volume on the way up. When stocks rally on light or declining volume, just a single session of higher volume losses can erase several days of hard-earned gains.

 

In yesterday's commentary, we annotated the chart patterns of three ETFs to consider for short-term buy entries (ICF, IYT, and XRT), as well as two ETFs to monitor for potential intermediate-term short sale entries (UGA and USO). Of the potential buy entries, all three pulled back yesterday, closing near the middle of their previous day's ranges. However, their bullish patterns are still valid, and each ETF could be considered for short-term buy entry above yesterday's high. Still, we may not "officially" enter these ETFs because we only anticipate them being very short-term moves for now. Rather, we'd first like to see a bit of consolidation that could lead to a more sustainable, intermediate-term uptrend. We point out actionable short-term plays such as these as "self-serve" ETF ideas for advanced traders.

While ICF, IYT, and XRT all retraced lower yesterday, both UGA and USO moved higher, coming into the target ranges for new short sale entry. As such, we sent an Intraday Trade Alert to subscribers yesterday, notifying them of our new short sale entry into USO. As illustrated in the June 15 issue of The Wagner Daily, we planned to sell short on a probe above resistance of the prior lows, just above the $35 area. On the chart below, notice our entry point came yesterday:

USO

In the immediate near-term, bullish momentum may cause USO to attempt to move higher. However, with an abundance of overhead supply to contend with, we believe the bears will soon resume control, causing USO to resume its intermediate-term downtrend. If that occurs, we expect USO to at least re-test its May low. But in case USO completely reverses its dominant downtrend, we have a protective stop right above the 200-day moving average, just over the $38 level.

Given yesterday's quiet session, nothing has really changed on a technical level. We still see the major indices in short-term uptrends, within the context of intermediate-term downtrends. But if the developing uptrend in the broad market holds up, new setups will start presenting themselves, and we'll be on top of pointing those out to subscribers. However, until that happens, there still isn't a whole lot in the way of quality, intermediate-term ETF trade setups with a positive reward/risk ratio.


Open ETF positions:

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

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Disclosure: Long UHD, Long THD, Short USO, Short GDX