Cash and Patience – Wagner Daily (SRS, IWM, SPY, DIA, QQQ)

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August 11, 2011 10:54am NYSE:SRS

Equities gave back most of Tuesday’s gains amidst declining trade yesterday. All five major indices closed well in the red. The small-cap Russell 2000 (NYSE:IWM) led the decline as it posted a 5.1% loss on the session. The Dow Jones Industrial Average (NYSE:DIA) and the S&P 500

 (NYSE:SPY) plunged 4.6% and 4.4% respectively. The Nasdaq (NASDAQ:QQQ) shed just over 4.0% while the S&P MidCap 400 fell by 3.3%.

The session ended with market internals mixed. Turnover dropped across with board. On the Nasdaq trade slid by 10.7% while on the NYSE it fell by just over 10.0%. However, declining volume overpowered advancing volume as the spread ratio ended the session at 15.2 to 1 on the NYSE and 12.5 to 1 on the Nasdaq in favor of down volume. Wednesday brought the lightest volume in four sessions suggesting some indecision in the market and a lack of institutional commitment in yesterday’s price action.

A follow up to our recent analysis of the NYSE Composite Index ($NYA.X) should help to provide some clarity to whipsaw action of the past several sessions. Notice that although we undercut the predicted drop of the head and shoulders pattern, the NYSE found support at the 76.4% Fibonacci retracement level (Drawn from 06/30/2010 low to 05/02/2011 high). Also note that we have been caught in a wide trading range that is bound by the 61.8% Fibonacci retracement level and the 76.4% retracement level. A break through either of these levels should result in a fairly sharp move in the direction of the break.

Since the massive breakout move that began on August 2nd and Culminated on August 8th, the ProShares UltraShort Real Estate ETF (NYSE:SRS) has pulled back sharply and undercut but held support of its 200-day MA. A few days of consolidation at the current level could bode well for a possible long entry in this ETF. We will be following this SRS closely for the formation of a potential long trigger.

We have been on the sidelines for quite some time now and that’s where we need to be until the market settles in and provides us reasonable risk/reward setups. The current environment is more suited for day traders as most intraday rallies can be shorted. However, the current market conditions are not conducive to swing trading particularly given the breadth of the current three day trading range. In this environment patience is warranted.

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]

DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.

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