Look For A Possible Long Entry In This ETF (EWM, SCZ, XLU, SOXL, DVY, PPH, IAU)
Stocks surged higher on Thursday but on lighter trade. Following Wednesday’s poor performance, bulls stepped back into the market yesterday, carrying the major indices well into the black. Yesterday’s rally easily erased all of Wednesday’s losses. Higher beta issues dominated the action, as the small-cap Russell 2000, S&P MidCap 400 and Nasdaq posted gains of 2.0%, 1.6% and 1.5% respectively. The S&P 500 added 1.1%, while the DJIA climed 1.0%. Technology issues caught fire resulting in a strong showing by the semiconductor, networking and software sectors. The banking, insurance and oil services sectors also outperformed. The homebuilder and defense sectors were the day’s big losers
Although Thursday’s price action was quite bullish, market internals ended the session mixed. Turnover fell on the Nasdaq by 5.0% and on the NYSE by 1.3%. Advancing volume easily topped declining volume on both exchanges. By the closing bell the spread ratio stood at a plus 5.7 to 1 on the NYSE and a plus 4.2 to 1 on the Nasdaq. Yesterday felt like an accumulation day but the light volume suggests that institutions were not fully vested in the day’s action.
Yesterday, on above average volume, the iShares MSCI Malaysia Index Fund (NYSEArca:EWM) formed a bullish reversal candle. EWM undercut its 20-day EMA but roared back to close near session highs. A volume powered move above Thursday’s high of $14.42 could provide a buying opportunity in this ETF. On pullback entries, we generally look to enter long positions just above big reversal candles.
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The iShares MSCI EAFE Small Cap Index Fund (NYSEArca:SCZ) undercut its 200-day MA and held support at the three day low yesterday. Futher, SCZ formed a reversal candle and is now poised to make a move higher if it can get above the two day high of $39.18. We will be monitoring SCZ closely for a possible long entry.
(NYSEArca:XLU) hit its trigger yesterday and we entered the trade. (NYSEArca:SOXL) rallied strongly and closed at session highs (up over 7%). We may look to exit this position if it gaps up in the morning. (NYSEArca:DVY) ripped higher on big volume and also closed near session highs. Our watchlist candidates, (NYSEArca:PPH) and (NYSEArca:IAU), both closed at session highs and are now within striking distance of their entry triggers.
After being placed under duress on Wednesday, the market demonstrated bullish resiliency, as it recovered to set new highs. Once again buyers stepped in to buy the pullback and reverse the tables on market bears. The only thing missing from yesterday’s rally was strong volume. It would have been nice to see the market put in an accumulation day in the wake of Wednesday’s selling.
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.
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