Industrial Average and the S&P 500 slid 1.1% in Tuesday’s action. The small-cap Russell 2000 shed 0.9%, while the S&P MidCap 400 put in the best showing, as it fell 0.7% on the day.
Market internals were negative but somewhat tempered by the fact that stocks finished well above the session lows. Still, gap downs of the magnitude seen in yesterday’s session are generally not a healthy sign for bulls. Volume was up sharply across the board. Turnover increased on both the Nasdaq and the NYSE by 33%. Advancing volume fared poorly across both indices. Down volume overwhelmed up volume by a ratio of 4.7 to 1 on the NYSE and 4.2 to 1 on the Nasdaq.
The Regional Bank HOLDRS ETF (NYSE:RKH) recently formed a head and shoulders like reversal pattern. Yesterday RKH gapped down below the neckline, reversed and then rallied back into the neckline. A light volume move toward the two day high of $87.17 could provide a possible shorting opportunity for this ETF. Should this technical pattern hold true to form, the projected decline for RKH would be a move back to the 200-day MA. We will be monitoring RKH intraday for a potential short setup.
The iShares Dow Jones US Telecom Sector ETF (NYSE:IYZ) lost support yesterday but rallied off the session lows to close at the newly formed resistance level near $22.70. An overcut of this key mark could provide a shorting opportunity in IYZ.
The market demonstrated signs of resiliency on Tuesday but it would be a stretch to consider the overall action as healthy for stocks. As we stated in yesterday’s newsletter, we will be monitoring the market for intraday setups as opposed to pre-determined entries.
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: email@example.com.