Wagner Daily: A Closer Look At These ETFs (USO, GSG)

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December 17, 2010 11:25am NYSE:GSG NYSE:USO

Stocks posted solid gains on Thursday and closed near the session highs. However, trade was light across the board. The market was directionless in early trade, but at 11:15 am buyers entered and

 remained in the market into the close. The advance was led by the small-cap Russell 2000 and the S&P MidCap 500. Both finished the day higher by 1.0%. The Nasdaq, NYSE and Dow Jones Industrial Average posted gains of 0.8%, 0.6% and 0.4% respectively. The Dow continued to struggle with the 11,500 mark, but given the heavy volume selling in Visa, the Dow held up surprisingly well.

Internals were mixed in Thursday’s action. Volume was light on both indices. For the second consecutive day volume on the Nasdaq was down. It dropped by just over 7% on the day. Volume on the NYSE fell by 5.3% day over day. Despite the light volume, the ratio of advancing volume to declining volume was a favorable 3.3 to 1 on the Nasdaq and 2.8 to 1 on the NYSE. Although all five major indices advanced on Thursday, market internals provided no evidence of institutional involvement.

Yesterday, our “tightened” stop was hit in EPU and we exited the trade with a small gain. All other positions are intact, but UNG sold off briskly yesterday on high volume. It seems likely that the stop for UNG will be trigged tomorrow.

Our position in the United States Oil Fund ETF (NYSE:USO), has performed well. Over the past nine trading days this ETF has formed a bullish pennant-like formation (see daily chart). A move above the four day high of $38.36 on increasing volume should propel USO to a new 7 month high. However, USO does face serious resistance at the 20-month EMA (see monthly chart). The resistance coincides very closely with our target for USO. In the event that USO rallies above this key moving average, we may look to sell it into strength rather than wait for it to hit our target. We will send an intraday alert should we decide to exit this position early.

The iShares GSCI Commodity-Indexed Trust (NYSE:GSG), has been forming a pennant-like consolidation pattern just below its 12 month high. A break above the December 7th high of $33.44 on increasing volume should carry this ETF to higher ground. We are placing GSG on the watchlist. For our members, trade details can be found in the watchlist segment of the newsletter.

With triple witching options expiration upon us, it will be interesting to see if today’s action can shake the market loose from five consecutive days of consolidation. Overall, market activity has been noticeably light for an options expiration week.

The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.

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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