All Price + No Volume = Suspect Rally (DJP, COW, SPY, DIA, QQQ, IWM)

Stock put in a strong performance on Monday but on very light volume. All five major indices ended the session higher by more than 2.0%. Smaller cap stocks led the way as the small-cap Russell 2000 (NYSE:IWM) and the S&P MidCap 400 rocketed 4.8% and 3.90% respectively. The Nasdaq (NASDAQ:QQQ) climbed 3.3% while the S&P 500 (NYSE:SPY) tacked on 2.8%. The Dow Jones Industrial Average (NYSE:DIA) underperformed as it posted a 2.3% gain.

Market internals ended the session at opposite extremes. Volume was down significantly on the session. On the Nasdaq turnover fell by almost 13.0% and on the NYSE by 20.3%. However advancing volume overwhelmed declining volume by an impressive 32 to 1 on the NYSE and 39 to 1 on the Nasdaq. Yesterday’s price action was likely a result of short covering as the light volume suggests a lack of institutional participation in the rally. Yesterday was a follow through day but far from an accumulation day for the broad market.

Since forming a massive reversal bar on August 9th the iPath Dow Jones AIG Commodity ETN (NYSE:DJP) has clawed its way back into resistance of the 200-day MA. Yesterday DJP showed relative weakness to the market as it gapped above its 200-day MA at the open and then sold off to close in the bottom third of its trading range. A volume assisted move back below yesterday’s low of $48.51 could present a short entry trigger for this ETF.

Yesterday the iPath DJ-UBS Livestock Total Return Sub-Index ETN (NYSE:COW) gapped up to open at the high of the day, immediately sold off and eventually closed near session lows. A move below the three day low of $28.89 could present a short entry for this ETF.

The anemic volume muted what was an otherwise excellent day on Wall Street. Rallies on extremely light volume are suspect particularly when they are parabolic. Without institutional participation, moves of yesterday’s magnitude are almost always unsustainable.

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: [email protected]

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