Expect The Unexpected In This Market? (ZSL, YCS, SPY, DIA, IWM, QQQ)
Stocks closed mixed on Wednesday on modestly higher volume. Large cap tech stocks weighed down the market for most of the day. After being ravaged by almost 2.5%, the Nasdaq (NASDAQ:QQQ) surged higher late in the session to close down only 1.0% on the day. All the other major indices posted modest gains following the late day surge. The small-cap Russell 2000 (NYSEARCA:IWM) and the S&P MidCap 400 ended higher by 0.3% and 0.2% respectively. The S&P 500 (NYSEARCA:SPY) also added 0.2%, as the Dow Jones Industrial Average (NYSEARCA:DIA) closed fractionally higher.
Market internals ended the day mixed. Turnover rose by 4.1% on the Nasdaq but only marginally on the NYSE. However, declining volume outpaced advancing volume on the Nasdaq by 1.6 to 1, while advancing volume held the upper hand by a factor of 2.3 to 1 on the NYSE. Although the broad market closed higher, the gains were not enough to constitute an accumulation day. The Nasdaq saved itself from a certain distribution day disaster as a result of its strong rally into the close. We do not believe it would be correct to classify yesterday’s price action in the Nasdaq as distribution, given that the index closed in the upper 25% of its intraday range, and formed a reversal candle.
Yesterday, via intraday alert, we entered a small position in the ProShares UltraShort Silver ETF (NYSEARCA:ZSL). Since breaking out on December 14th, ZSL has spent five sessions forming a bullish pennant. We took small size at this level with a small stop in anticipation of a breakout. Since we got in early we set a wide stop. Depending on how ZSL sets up from here, we may consider adding to the position if the setup warrants doing so.
In Wednesday’s newsletter we stated that (NYSEARCA:YCS) was a potential long candidate, as it has been consolidating at the 20-day EMA over the past three weeks. Based on yesterday’s price action we have decided to place YCS on the watchlist. Trade Details are available to our members in the watchlist segment of the newsletter.
Yesterday’s intraday recovery was decisive and provides another sign that bulls may be getting closer to wrestling control of the market. Nonetheless, we don’t carry big expectations going into the holiday season. If the market can avoid setting a new swing low between now and the new year, we could be very well setting up for a January rally. But as we’ve learned over the past several weeks, expect the unexpected when it comes to this market.
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: email@example.com.