Buy Signals For The Treasury and S&P Select Utilities ETF? (TBT, XLU, IYT, DVY, DIA, SPY, IWM, QQQ)
Stocks closed modestly higher yesterday on brisk trade. All five major indices finished in positive territory, with the Nasdaq (NASDAQ:QQQ) showing the most resiliency. The tech-rich index added 0.4%. The S&P 500 (NYSEArca:SPY) gained 0.2%, while both the small-cap Russell 2000 (NYSEArca:IWM) and the S&P MidCap 400 added 0.1%. The Dow Jones Industrial Average (NYSEArca:DIA) ended the session fractionally higher. Sector ETFs showing the most relative strength included oil services, internet, emerging markets, solar energy and networking. Weaker sectors included natural gas, healthcare, pharmaceuticals and transportation.
For a second consecutive day, market internals provided a modestly bullish signal. Volume on the Nasdaq increased by 10.9% and 6.9% on the NYSE. Advancing volume outpaced declining volume by a ratio of 1.5 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. The Nasdaq qualified for an â€œaccumulation dayâ€ yesterday, as the index gained 0.4% on increasing volume. The ongoing lack of institutional distribution and positive market internals means the overall tone of the market remains healthy.
Since October 2011, the UltraShort 20yr + Treasury Fund (NYSEArca:TBT) has been consolidating between $18.00 and $19.75, and appears to be forming a base from which to launch a possible reversal move higher. The 20-day exponential moving average has crossed above the 50-day moving average, and TBT is now trading in a tight range above both of those indicators. Further, TBT has been setting a sequence a higher lows over the past several weeks. If TBT can move above the 2-day high of $19.50 on a pickup in volume, it may present a buying opportunity. As such, we are monitoring TBT as a potential long candidate. The trade setup is illustrated on the daily chart below:
In yesterday’s newsletter we stated; “the S&P Select Utilities SPDR Fund (NYSEArca:XLU) undercut the four day low and reversed to close near session highs. A volume fueled rally above yesterday’s high of $35.04 could present a buy entry trigger for this ETF.” During yesterday’s session, XLU formed its second reversal candle in a row and closed near key resistance. As such, we are adding XLU to today’s watchlist. Trade details are posted in the ETF watchlist section of this newsletter.
(NYSEArca:DVY) posted a fresh 52-week high yesterday and (NYSEArca:IYT) held support at its 2-day low. Both trades continue to perform well as the market consolidates. Our watchlist candidates, IAU and PPH, both recovered nicely after testing support near the 2-day low. Although the broad market finished higher on Wednesday, it didn’t make much progress. This is a bit surprising given the higher volume. It is also noteworthy that we did see some selling into strength yesterday morning, which we haven’t seen in quite some time. However, the intraday recovery in the afternoon washed away most concerns from the earlier selling pressure.
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: firstname.lastname@example.org.
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