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Market Indecision Reigns (EWW, XLP, SPY, DIA, IWM, QQQ)

December 9th, 2011

Stocks tumbled sharply on Thursday on increased trade. All five major indices closed down for the session. The small-cap Russell 2000 (NYSEARCA:IWM) demonstrated the most weakness as it slumped 3.1%. The S&P MidCap 400 dropped 2.6% while the S&P 500 (NYSEARCA:SPY) slid by just over 2.1%. After showing relative strength to the S&P early in the session, the Nasdaq (NASDAQ:QQQ) ended the day down 2.0%. The Dow Jones Industrial Average (NYSEARCA:DIA) fared the best on the day, as it contained losses at 1.6%.

Market internals cast a bearish shadow over the market yesterday. Volume expanded by 10.3% on the Nasdaq and 1.0% on the NYSE. On the NYSE Declining volume overwhelmed advancing volume by a whopping 34.0 to 1, while the Nasdaq saw declining volume fare better than advancing volume by 6.1 to 1. The uptick in volume combined with the strong declining volume points directly to institutional selling. Therefore, we would classify yesterday as a distribution day for the broad market.

Yesterday, on an increase in volume, the iShares MSCI Mexico Investable Market ETF (NYSEARCA:EWW) gapped down and sold off to close at session lows. EWW is now testing support of its 20-day EMA. A move below yesterday’s low of $54.18 could present a short entry trigger for this ETF.


The S&P Select Consumer Staples SPDR ETF (NYSEARCA:XLP) sold off yesterday on declining volume, and is now testing support of the November 30th low ($31.62). XLP has been one of the strongest ETFs in the market and a pullback to the 20-day EMA could provide a buy entry for this ETF.

We covered our short position in GDXJ yesterday for a solid gain. We made the decision to exit the trade early in large part due to the recent whipsaw action in the market. Thursday brought another strange day of trading, as a large proportion of ETFs that had reversed to close near session highs on Wednesday, gapped down sharply yesterday and closed near session lows. Many ETFs also broke below key support levels. As we’ve pointed out quite often lately, there is a clear lack of follow through in the market and this has made for very challenging trading.


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:EWW, NYSE:XLP


 

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