Markets: Is It Time To Get Short? (FXP, IWF, IWM, SPY, DIA, QQQ)

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December 29, 2011 11:12am NYSE:FXP NYSE:IWF

Stocks were under consistent selling pressure on Wednesday on higher volume. By the end of the session, all five major indices were well in the red, and near the day’s lows. Smaller cap issues felt the brunt of the selling pressure. The small-cap Russell 2000 (NYSEARCA:IWM) and the S&P MidCap 400

lost 2.1% and 1.8% respectively. The Nasdaq (NASDAQ:QQQ) and the S&P 500 (NYSEARCA:SPY) both slid 1.3% yesterday. As has been common lately, the Dow Jones Industrial Average (NYSEARCA:DIA) exhibited relative strength to the broad market. At the closing bell the big cap index lost 1.1%.

Market internals were bearish yesterday. Total volume ended higher on the Nasdaq by 12.8% and on the NYSE by 8.3%. Declining volume significantly outpaced advancing volume on both exchanges. On the NYSE the Spread Ratio finished at -22.3 to 1 and on the Nasdaq it ended at -8.6 to 1. Although volume was higher across the board on Wednesday, and we would consider it a distribution day, it is noteworthy that it was well below its 50-day moving average.

Yesterday, for the fourth time since late October, the S&P 500 was unable to reclaim its 200-day MA. If the broad market is to move to higher ground, the S&P must clear this key mark. Yesterday’s action in this index provides an excellent demonstration of the importance of the 200-day MA. The S&P now appears to have drawn two important “lines in the sand”. The next big move in this index will likely be determined by whether it breaks through resistance at 1,270 first or loses support at 1,202 first.

Yesterday, on a burst of above average volume, the iShares Russell 1000 Growth Index ETF (NYSEARCA:IWF) opened at the high of the day and closed almost at the low of the day. A move below yesterday’s low of $57.42 could present a shorting opportunity in this ETF. We will be monitoring IWF closely for a possible short entry.

On an uptick in volume, the ProShares UltraShort FTSE China 25 ETF (NYSEARCA:FXP) gapped up and closed near session highs yesterday. Further, this ETF cleared all three of its moving averages and is now poised for a move higher. A volume fueled rally above yesterday’s high of $31.25 could provide a buy entry trigger for FXP. We are placing FXP on the watchlist. Trade details are provided in the watchlist section of the newsletter for our subscribing members.

Yesterday, via an intraday alert we exited our position in ZSL as it hit our target. We posted over a 1% gain on the trade. Also yesterday, IWM hit its stop and we sold the position for a small loss. Our watchlist candidate, EUO, hit its trigger and we entered the trade. EUO performed well and closed near the day’s high. Our YCS trade gapped lower at the open but rallied back to reclaim support of its 20-day EMA. It also managed to close in the upper third of the day’s range. In the absence of serious volume, we don’t expect much follow through in the market in either direction. Under current market conditions we are inclined to cut losses and take profits quickly.

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

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:

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