Look For A Buying Opportunity In This UltraShort Oil and Gas ETF (DUG, EWM, IWM, SPY, DIA)
Stocks posted mixed results yesterday as trade quickened. The Nasdaq fell 0.8% yesterday and lost support of its 50-day MA. The S&P 500 (NYSEARCA:SPY) also lost ground as it closed lower by 0.1%. However, the DJIA (NYSEARCA:DIA) showed relative strength as the blue chip index tacked on 0.6%. The small-cap Russell 2000 (NYSEARCA:IWM) and the S&P MidCap 400 rose by 0.2% and 0.1% respectively.
Market internals were mixed yesterday. Volume increased on the Nasdaq by 7.5% but fell on the NYSE by 2.6%. Advancing volume marginally outpaced declining volume on the NYSE by 1.1 to 1. However, declining volume held the upper hand on the Nasdaq by a factor of 1.3 to 1. Based on yesterday’s internals and price action, it is reasonable to conclude that the Nasdaq once again fell under distribution.
Since gapping up on April 9th, the inversely correlated ProShares UltraShort Oil and Gas ETF (NYSEARCA:DUG) has been consolidating in a tight flag-like formation. A volume fueled move above the five day high of $25.50 could provide a buying opportunity in DUG. However, as with all inverse leveraged ETFs, any entry should be short-term in nature due to the underperformance of this type of ETF that occurs with longer holding periods:
During the recent round of selling, the iShares MSCI Malaysia ETF (NYSEARCA:EWM) has shown relative strength as it has held support at its 20-day and 50-day moving averages. Although EWM could offer a buy entry above yesterday’s high of $14.65, a more favorable setup would involve EWM establishing a “higher-low” before continuing any possible move higher.
The market continues to struggle. Yesterday, the Nasdaq joined the other major indices as it closed below its 50-day moving average. Although the market continues to see selling pressure, we remain in a trading range. Still, we need to hold the current levels or the current pullback could lead to a much larger correction.