Breakout Around The Bend? (DUST, XRT, RWR, IWB, SPY, DIA, IWM, QQQ)

Stocks closed modestly higher on increased volume. Stock meandered in a tight range for the entire session. Each of the major indices finished in higher territory, as smaller cap stocks showed the most resiliency. By the close, the small-cap Russell 2000 (NYSEARCA:IWM) added 0.6%, while the S&P MidCap 400 rose 0.5%. The Dow Jones Industrial Average (NYSEARCA:DIA), S&P 500 (NYSEARCA:SPY) and Nasdaq (NYSEARCA:QQQ) managed gains of 0.3%, 0.2% and 0.1% respectively.

Internals ended the day on a modestly bullish note. Volume increased by 5.5% on the Nasdaq and by 2.0% on the NYSE. Advancing volume outpaced declining volume on both exchanges by a factor of 2 to 1. In order to have an accumulation day, our rules require that volume be higher and that the index must close up by 0.3% or more. This only occurred on the DJIA, S&P MidCap 400, and small-cap Russell 2000. Nonetheless, at a minimum, we likely witnessed a bullish day today.

Since the pullback began on December 29th, the Direxion Daily Gold Miners 3x Bear ETF (NYSEARCA:DUST) has pulled back into support of its 50-day MA. If DUST can clear $38.00 on a burst of volume, it could be a potential long candidate. Further, a move above $39.00 could provide a secondary entry point or a safe place to acquire additional shares. It could make sense to “leg” into the position by taking a partial position above $38.00 and adding to it above the next resistance level. Entering small size above different resistance levels is a good strategy in a choppy market, as it minimizes risk if the initial entry fails. We are placing DUST on the Watchlist. Trade details are posted for our subscribers in the watchlist segment of the newsletter (note the two trigger prices and stops).

Following a false breakout and sharp reversal on January 3rd, the SPDR Dow Jones Wilshire REIT (NYSEARCA:RWR) has pulled back and undercut support of both its 200-day and 20-day moving averages. It then quickly recovered to reclaim support of these key levels. A volume fueled rally above the three day high of $64.79 could present a buy entry in this RWR. We will be monitoring RWR closely for a possible long entry.

Neither of our watchlist candidates triggered today (XRT, IWB) but both setups remain intact. Our open positions in IYT and IYZ both held support for a third consecutive day. They both also closed near session highs. If IYT and IYZ can each clear their respective 3-day highs, both should see strong rallies. All in all, it was an uneventful day on Wall Street. However, with each day the market consolidates at the current levels, the more likely it appears that the market will move higher. We continue to be impressed by the number of high relative strength stocks that have been holding their breakouts over the past several sessions. This is a good sign that we may be headed higher.


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: [email protected]

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