MidCap 400 each shed 0.1%. The S&P 500 (NYSEArca:SPY) demonstrated the most relative strength yesterday, as it closed fractionally lower. The gold, oil, utilities, healthcare and transportation sectors all struggled yesterday, while solar energy, biotechnology, oil services and networking outperformed.
Market internals were mixed on Monday, as volume plummeted. On the Nasdaq, trade fell by 22.0%. NYSE turnover was similarly lighter by 23.6%. Declining volume marginally outpaced advancing volume by 1.1 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Monday would be considered a typical consolidation day for the broad market because prices were little changed, price action tightened, and volume dropped.
Yesterday, on increasing volume, the SPDR S&P Oil & Gas Exploration ETF (NYSEArca:XOP) rallied to close at its intraday high and within striking distance of a key level of horizontal price resistance. If XOP can rally above resistance of the January 26 high of $57.32, it could provide an excellent buying opportunity. We are monitoring this ETF carefully for a possible long entry.
Since its big breakout move on January 25, 2011, the iShares Gold Trust (NYSEArca:IAU) found resistance near $17.20 and has now pulled back near support of its 20-day EMA and uptrend line. When gold broke out two weeks ago, we received quite a few emails inquiring whether or not gold offered a buying opportunity. At that time, we stated that it was probably not the time to enter the precious metal because the trade was too extended. However, we also stated that gold may offer a buying opportunity on a pullback.
Now that gold is pulling back, an “undercut” of the 20-day EMA could provide a possible buy entry point for IAU. Still, an undercut is not a trade setup. In order for IAU to provide a buying opportunity, it must first show some sign of stabilizing from this pullback (ie. basing action and the formation of a reversal candle). Entering an ETF simply because it approaches or touches a key support level is not advisable as there is no way to know whether or not the uptrend will resume. Trade setups are what make a trade legitimate. We will be monitoring IAU closely for a possible long entry trigger and will notify subscribers via Intraday Trade Alert if an entry is made.
Both (NYSEArca:IYT) and (NYSEArca:DVY) performed well yesterday, as both maintained support at the 20-day EMA on the 60-minute chart. Following a breakout, we will often consult the 60-minute charts as a means of determining the strength of an ETF when it pulls back. As long as the price action on the 60-minute chart remains strong, there’s generally little to worry about. Yesterday’s broad market price action was ideal following Friday’s bullish surge. Distribution days have been virtually nonexistent since late December of last year. At least for the moment, it appears as if the market is determined to continue the move higher.
The commentary above is an abbreviated version of The Wagner Daily, a daily ETF and stock swing trading newsletter. Subscribers to the full version also receive detailed entry and exit prices for potential swing trade entries, and an additional section dedicated to individual stock trades. To learn more, please visit morpheustrading.com.
Deron Wagner is a professional hedge fund manager who founded Morpheus Trading Group, a swing trader education firm, in 2002. He is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis. His new book, Advanced Technical Analysis of ETFs, will be released in August 2012. Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is also a frequent guest speaker at various trading events around the world, and can be reached by sending e-mail to: email@example.com.