Oil and Gas Exploration ETF Surges Above 200 Day On Big Volume (XOP, IYT, IYR, DVY, XLP, DIA, SPY)

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January 25, 2012 11:14am NYSE:DVY NYSE:IYR

For the third time in as many days, stocks showed little direction, and ended the session mixed.  By the closing bell three of the five major indices were up and two were down.  Higher beta issues led the way, as the small-cap Russell 2000 (NYSEArca:IWM), S&P MidCap 400 and the Nasdaq

(NASDAQ:QQQ) posted gains of 0.7%, 0.4% and 0.1% respectively.  The S&P 500 (NYSEArca:SPY) slid modestly to close down 0.1%.  The DJIA (NYSEArca:DIA) was the session’s laggard as it dropped 0.3%.  After the close, AAPL skyrocketed over 30 points, following a positive earnings announcement.  The retail, real estate, oil service, networking and software sectors were strong yesterday.  Healthcare, transportation, miners and utilities all showed relative weakness yesterday.

Market internals ended mixed for the session.  Volume was lower on the NYSE by 2.1% and on the Nasdaq by 3.3%.  However, advancing volume upped declining volume by a factor of 1.1 to 1 on the NYSE and 1.3 to 1 on the Nasdaq.  The light volume suggests that institutions were not particularly active on Tuesday, possibly in anticipation of Apple’s earnings announcement.

On Monday the SPDR S&P Oil and Gas Exploration ETF (NYSEArca:XOP) surged above its 200-day MA on a burst of volume.  Yesterday, this ETF lost support of this key moving average before recovering into the close, to close near session highs.  Yesterday’s shakeout move and recovery in XOP, suggests that this ETF may be prepared for a move higher.  This is exactly the type of price action we like to see prior to a breakout.  A move above the two day high of $55.59 could provide a buy entry trigger for XOP.  We will be watching this setup carefully for a possible long entry.

Our open positions in (NYSEArca:IYT) and (NYSEArca:IYR) performed well yesterday.  IYR showed excellent relative strength as it shook off an early setback to close higher on the day.  Further, IYR formed a bullish engulfing candle and appears well positioned to challenge last summer’s highs.  IYT gapped down and tested key support at the 20-day EMA, but reversed to close near session highs.  IYZ struggled for most of the session but also managed to hold support of its 20-day EMA.  Although we raised all of our stops yesterday, none were hit, and we remain in all three positions.  We were careful in selecting our stop placement, in order to avoid getting swept from the positions in the event of a move, like the one we witnessed today.  Our watchlist candidates, (NYSEArca:DVY) and (NYSEArca:XLP), both remain legitimate setups and all setup paramaters are the same.  Refer to the watchlist for specific trade details.

What occurred intraday was uneventful.  However, after the close, (NASDAQ:AAPL) beat both revenue and earnings estimates, and the shares of the tech giant surged over 30 points.  This move sent the Nasdaq futures higher by nearly 0.9%.  It is just this type of scenario that has kept us away from the short side of the market.  Although we have been commenting for several days that the market appears primed for a pullback, this is not an environment that is easy to short.

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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