Look For A Shorting Opportunity In This ETF (VGK, GXG, IWM, SPY, DIA)
Stocks pared some of Tuesday’s big losses but trade was light. The small-cap Russell 2000 (NYSEARCA:IWM) led the advance as it posted a 1.6% gain. The S&P MidCap 400 added 1.2%, while both the DJIA (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) posted 0.7% gains. The tech-rich Nasdaq climbed by 0.8%. Platinum, non ferrous metals and gold miners all struggled yesterday, while aluminum, homebuilders and telecommunications all posted strong gains.
Wednesday ended with market internals mixed. Volume plunged by 21.7% on the Nasdaq and 19.4% on the NYSE. However, advancing volume topped declining volume by 3.8 to 1 on the NYSE and 3.6 to 1 on the Nasdaq. Given the light volume, it is safe to conclude that institutional players were not active in the market on Wednesday.
The Vanguard MSCI Europe ETF (NYSEARCA:VGK) has been one of the weaker ETFs during the rally off of last summer’s lows. During the rally, VGK struggled just to reclaim its 200-day MA. During the recent pullback, VGK collapsed below all of its major moving averages, including the declining 200-day MA. A rally into the declining 20-day EMA and 200-day MA could present a shorting opportunity in this ETF.
The Global X FTSE Colombia 20 ETF (NYSEARCA:GXG) has shown excellent relative strength during the recent market decline. On April 10th, GXG formed a bullish reversal candle, as it under cut the 50-day MA but rallied on strong volume to close near session highs. GXG has now been forming a strong base for almost a month. It generally takes six to eight weeks to form the proper base from which to launch a sustainable rally. Although GXG could provide a long entry above the six day high of $21.50, it is much more likely that this breakout will fail, particularly given the current weak conditions in the broad market. If we were to take a position in GXG above $21.50, we would reduce our position size.
Yesterday’s market rally was far from impressive, as it lacked the strong volume needed to begin repairing the damage done over the past week. We will continue to be selective in our selection of new positions and look to take profits and cut losses promptly.