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Markets: One Stubborn Bull? (DTO, SRS, IWM, SPY, DIA, QQQ)

October 12th, 2011

Stocks closed mixed on Tuesday in modestly higher trade. Large cap issues underperformed as the Dow Jones Industrial Average (NYSE:DIA) slid 0.2% while both the S&P MidCap 400 and the S&P 500 (NYSE:SPY) closed fractionally higher. The Nasdaq (NASDAQ:QQQ) added 0.7% and the small-cap Russell 2000 (NYSE:IWM) eked out a 0.6% gain.

Market internals were positive but far from impressive. Volume rose by 5.3% on the Nasdaq and 3.0% on the NYSE. Advancing volume edged out declining volume by a factor of 1.4 to 1 on the NYSE and 1.6 to 1 on the Nasdaq. We once again failed to post a follow through day in the market and market internals were not strong enough to suggest that institutions were actively accumulating shares.

Yesterday we entered a long position in PowerShares DB Crude Oil Double Short ETF (NYSE:DTO) but in the afternoon session our stop was hit and we exited the trade. Subsequent to our exit, DTO reversed and rallied strongly to close near session highs. It is apparent from our quick exit that we set the stop a bit too tight in this trade. When a trade is not successful you must always be willing to re-enter the position in the event that a new setup presents itself. Remember, each trade stands of its own merits. We liked the late session price action in DTO and are therefore adding it to the watchlist. A move back above yesterday’s high of $63.63 should present a buying opportunity in this inverse ETF.


The ProShares UltraShort Real Estate ETF (NYSE:SRS) is once again in play as a potential long candidate. A volume fueled moved above yesterday’s high of $16.79 may provide a quality long entry trigger for this ETF.

The current rally appears to be reaching a point of exhaustion but there are still only a few sectors that have begun to form reversal candles. If the last five days are all the market has to offer in terms of bullishness, it seems likely that market bears will soon gain control of the price action.


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:DTO, NYSE:SRS


 

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