Wagner Daily: A Closer Look At These ETFs (IEV, EZA, DZZ, GDXJ)
The major indices all ended the day down on Friday, but on lighter volume. Stocks showed significant weakness until 1:00pm, at which time the market gained footing and rallied into the close. The afternoon rally saved what could have been a very poor day for the market. As it was, the market only avoided a distribution day because trade was down. The small-cap Russell 2000, S&P MidCap 400 and the Nasdaq closed down by 0.4%, 03% and 0.3% respectively. Both the Dow Jones Industrial Average and the S&P 500 shed 0.2% in yesterday’s action.
Friday brought a decrease in volume to both major indices. Turnover on the NYSE was down a slim 0.4% while volume on the Nasdaq finished off by 6.7%. Declining volume unanimously outpaced advancing volume on both the NYSE and the Nasdaq, by a factor of 1.6 to 1.
On Friday we sent out an alert that GSG hit our stop and we exited the position. Several days earlier, we made a judgment call to sell half of the position in this ETF. At the time we didn’t like the overall market action, or the performance of GSG. The trade could still possibly follow through, but we felt it wiser to free up the capital in the event a better opportunity presented itself. Sometimes trades don’t work out the way we like but trade management is a big component of successful trading.
In Friday’s newsletter we stated that, “the iShares MSCI South Africa Index ETF (NYSE:EZA) has been selling off for the past three days and may be close to finding support. One possible long setup would be an undercut of the 50-day MA, followed shortly thereafter by a reversal candle back above this moving average”. On Friday EZA gapped down, undercut the 50-day MA and ended the day just above this key level. A volume fueled move back above $73.90 would suggest that EZA is still in the midst of a healthy uptrend. Another minor undercut of the 50-day MA and/or several days of consolidation at the current level would also be typical price action for this type of technical setup.
We sent an intraday alert last week suggesting buying DZZ as an alternative to shorting GDXJ. The Deutsche Bank AG DB Gold Double ETF (NYSE:DZZ) has spent the last three trading days consolidating above the 50-day MA. Further, volume has been strong and it is quite possible that DZZ has formed a triple bottom technical pattern. A rally above the 3 day high of $8.65 on solid volume may provide a long trigger for this ETF. Gold and silver have been under distribution pressure over the past several days and should this trend continue, DZZ offers a potential buying opportunity. Despite the fact that we are already short a gold related ETF (NYSE:GDXJ) we still like the setup in DZZ. The junior miners often trade differently than a pure gold play like DZZ.
The iShares S&P Europe 350 Index ETF (NYSE:IEV) has been demonstrating relative weakness against the broad market lately. It has spent most of the past month trading below its 20-day EMA and 50-day MA. It is generally not considered bullish to trade below the 50-day MA for such an extended period of time. On Friday this ETF undercut the key horizontal support level of $38.57 on strong volume. A move below Friday’s low of $38.35 provides a possible short entry in IEV. We are listing IEV on the watchlist. For our members, trade details for this setup can be found in the watchlist segment of the newsletter.
More and more short setups are beginning to appear in our nightly research. Although there are still a reasonable number of long setups coming up in our scans, they all look identical. Virtually every buy trigger involves going long above the five day high (irrespective of the ETF). We generally don’t like trading setups that seem too obvious across the board. Just about the time that everyone sees the same thing is when the market exacts its biggest toll. We are not particularly bearish yet, but we are cautious when such circumstances arise.
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: firstname.lastname@example.org.