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Investors: More Reward, Less Risk (PBJ, QQQ, IBB, AAPL, GOOG)

July 20th, 2011

Stocks rallied sharply on Tuesday and closed near session highs. All of the major indices added more than 1.5%. The Nasdaq (NASDAQ:QQQ) put in an impressive performance led largely by the recent good fortune of Apple Inc. (NASDAQ:AAPL) and Google (NASDAQ:GOOG). The tech rich index led the advance as it posted a 2.2% gain on the Day. The small-cap Russell 2000 also added 2.2% while both the Dow Jones Industrial Average (NYSE:DIA) and the S&P 500 (NYSE:SPY) tacked on 1.63% by the closing bell. The S&P MidCap 400 ended the day higher by 1.9%.

Internals ended the day mixed. Volume ended the session higher on the Nasdaq by 7.2% but fractionally lower on the NYSE. Advancing volume overpowered declining volume on both exchanges. The spread ratio ended the session at a healthy 5.5 to 1 on the NYSE and 5.3 to 1 on the Nasdaq. Despite the slightly lower volume on the NYSE it would be hard to argue that Tuesday was not an accumulation day for the broad market. Based on the strength of the price action it seems likely that institutional investors were actively engaged in Tuesday’s advance and we would classify the move as an accumulation day for the market.

After a sharp undercut of its 20-day and 50-day moving averages, the PowerShares Dynamic Food & Beverage ETF (NYSE:PBJ) reversed and rallied decisively back into its three week trading range yesterday. As a result PBJ is now well positioned for a possible breakout move to new highs. A rally above the four day high of $20.43 could present a buy entry in this ETF. Ideally we would like to see several days to several weeks of consolidation or a pullback to enter a position in PBJ. We will be monitoring this ETF closely for a possible buy trigger.


The iShares Nasdaq Biotechnology ETF (NASDAQ::IBB) has held excellent relative strength to the market during the recent rounds of selling in the broad market. On Monday IBB formed a reversal candle after undercutting support at its 20-day and 50-day moving averages. A volume fueled rally back above the four month high of $110.02 could present a buying opportunity in this ETF.

The whipsaw action in the market has made it difficult to identify quality setups that offer a reasonable risk/reward ratio. During times of high volatility we find it advisable to wait for the market to “settle down” and be patient in order to identify quality setups. A period of tight consolidation is generally needed for the market to make a sustainable advance.


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.


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.


NASDAQ:IBB, NASDAQ:QQQ, NYSE:PBJ


 

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