Approaching Key Support (SRS, XLP, IWM, SPY, QQQ, DIA)

Stocks closed lower on Wednesday and for a second consecutive day slid sharply into the close. In a reversal of Tuesday’s price action, smaller cap issues showed relative weakness on Wednesday as the small-cap Russell 2000 (NYSE:IWM)¬†and the S&P MidCap 400 sank 4.1% and 3.8% respectively. The tech rich Nasdaq (NASDAQ:QQQ)¬†dropped 2.2% as the S&P 500 (NYSE:SPY) lost just over 2.0%. The Dow Jones Industrial Average (NYSE:DIA) showed the most resiliency on the day as it contained losses to just over 1.6%.

Internals were mixed on Wednesday. Volume fell across both exchanges. Turnover slid by 8.1% on the Nasdaq and 10.7% on the Big Board. However, declining volume easily outpaced advancing volume by 7.4 to 1 on the Nasdaq and 26.3 to 1 on the NYSE. Despite the lighter volume yesterday’s late day price action gave all the appearances of institutional distribution. At a minimum it was a follow through day for market bears.

Yesterday, via intraday alert we re-entered a position in the ProShares UltraShort Real Estate ETF (NYSE:SRS) as it moved above Tuesday’s reversal candle. Although we had just taken a loss in SRS on Tuesday we did not hesitate to re-enter the trade when a quality setup presented itself. Each trade stands of its own merits. We also sent an alert that we were shorting the S&P Consumer Staples Select Sector SPDR ETF (NYSE:XLP) as it broke the two day low. EFZ also triggered yesterday and we entered the position. Trade details for these positions are available to our subscribers in the open positions section of the newsletter.

Last week we discussed two key support levels on the S&P 500. There are two distinct swing lows in place that the S&P must hold or the market is likely to see another significant selloff. The first key level is 1,120 which was established last week. If we lose support at 1,120 then the next stop is likely the August 9th swing low of 1,100. If we breach the August low we could test the lows set in July-August of 2010. At a minimum, now that the market is within striking distance of the August 9th swing low, it appears likely that we will move to at least undercut this key mark.

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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