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Wagner Daily: A Closer Look At These ETFs (EPU, EEV, PHO, EWP)

December 3rd, 2010

Stocks made an impressive surge on Thursday, as an appropriate follow-up to Wednesday’s breakout move. All five major indices closed up for the session, but for the second consecutive day trade was lower. The S&P 500 and the S&P MidCap 400 led the advance with impressive 1.3% gains. The Nasdaq closed up 1.2%, while the small-cap Russell 2000 rose 1.1% on the day. The Dow was the day’s laggard, but still posted a solid 1% rally. In the first two trading days of this month the Dow has gained 3.2%. This represents the largest two day advance for the blue-chip index since July.

Turnover was down again on Thursday. Although the market has performed quite well over the past two sessions, it is always noteworthy when a big move is not accompanied by a spike in volume. Large advances are typically accompanied by strong volume because of short covering. In Thursday’s action, volume was down by 4.1% on the Nasdaq and 2.3% on the NYSE. Day over day, advancing volume once again outpaced declining volume on both indices. The ratio on the NYSE was a plus 5.8 to 1, and positive by a margin of 2.7 to 1 on the Nasdaq.

Both the iShares MSCI All Peru Capped Index Fund (NYSE:EPU) and the PowerShares Water Resources ETF (NYSE:PHO), triggered as long entries today, while our position in (NYSE:EEV) hit its stop of $33.88. Based on our opening gap rules, both long positions were entered at the market after the first five minutes of trading. Entry and exit details are available for our subscribing members below.


After several days of rallying, numerous European ETFs appear to be setting up as possible short candidates. The iShares MSCI Spain Index ETF (NYSE:EWP) provides an excellent example. In the November 23rd newsletter EWP was placed on the watchlist as a short entry. However, EWP gapped more than 1% beyond our trigger and the trade was nullified. This ETF continued its plunge until November 30th when it set a new swing low (“lower low”) of $34.25. Since bottoming, EWP has made a sharp two day recovery, but is now approaching significant resistance at the convergence of the 20-day EMA and the 200-day MA. Further, the 20-day EMA has crossed below the 200-day MA. This is generally considered a bearish technical indicator. The intersection of these moving averages is also an important Fibonacci retracement level. A rally near $39.00 provides a potential trigger to short EWP. We will be monitoring this setup closely, as it appears to hold strong potential.

The December rally has been impressive, but the lack of volume is slightly concerning. Nonetheless, leadership remains in the market and the trend remains intact.


The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. 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.


NYSE:EEV, NYSE:EPU, NYSE:EWP, NYSE:PHO


 

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