Look For Momentum To Build In The Direxion Financial Bear 3x Shares ETF (FAZ, FAS, SPY, DIA)
Stocks ended the session mixed on light trade. With the exception of the Nasdaq, all of the major indices ended the day higher. The small-cap Russell 2000 closed higher by 0.4%, while the S&P 500 (NYSEARCA:SPY) rose by 0.3%. The Dow Jones Industrial Average (NYSEARCA:DIA) tacked on 0.2% and the S&P MidCap 400 added a modest 0.1%. The Nasdaq, the day’s sole loser, closed fractionally lower.
Market internals were mixed yesterday. Volume slid on the Nasdaq by 2.9% and on the NYSE by 15.9%. Advancing volume topped declining volume by a ratio of 1.5 to 1 on the NYSE. However, on the Nasdaq, declining volume held the upper hand by a ratio of 1.5 to 1. Needless to say, yesterday was an uneventful day in the market.
Over the past five sessions, the Direxion Financial Bear 3x Shares ETF ($FAZ) has been consolidating at support of its 20-day and 50-day moving averages. FAZ has also tested resistance around the $23.70 area three times within the past five weeks. As such, a move above this pivotal resistance level could generate momentum that leads FAZ substantially higher in the near-term. Regular subscribers of The Wagner Daily should note our specific entry, stop, and target prices for this swing trade in “today’s watchlist” below. The following daily chart illustrates the technical setup for this potential trade. [Related: Direxion Financial Bull 3x Shares ETF (NYSEARCA:FAS)]
As a reminder, note that FAZ is a leveraged “short ETF.” As with many other inversely correlated ETFs, especially the leveraged ones, this trade is designed to be of a very short-term nature. If it triggers our price for buy entry, we only plan to hold for a quick pop (anticipated hold time of just 3 to 4 days). Our average holding period for most swing trades is 1 to 3 weeks, but inversely correlated, leveraged ETFs typically underperform the underlying index as the holding period increases. This is discussed in more detail in my latest book.
Despite yesterday’s higher finish, it is noteworthy that all the major indices closed near their intraday lows. The market continues to struggle as leadership stocks are being hit hard. Yesterday, CRM fell over 10% and PCLN dropped almost 6.0%. Without solid leadership amongst individual stocks, the broad market is typically unable to move significantly higher. For the moment, more and more short setups seem to be developing, and we are finding fewer potential long candidates during our nightly research. For now, our bias remains on the short side of the market, but patience is required to allow setups to unfold.