Caution Warranted During Earnings Season (GDXJ, EUO, EDZ, DIA, QQQ, SPY, IWM)

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October 18, 2011 9:58am NYSE:EDZ NYSE:EUO

Stocks slid lower on Monday amidst higher trade. All five major indices ended the session in the red. Price action was negative for most of the day as the vast majority of shares opened at the high and closed near the low of the session. The small-cap Russell 2000 (NYSE:IWM) led the move lower as it fell 3.3%

. The S&P MidCap 400 shed 2.9% while the Dow Jones Industrial Average (NYSE:DIA), Nasdaq (NASDAQ:QQQ) and S&P 500 (NYSE:SPY) lost 2.1%, 2.0% and 1.9% respectively

Market internals were bearish across both exchanges but the Nasdaq once again showed relative strength to the broad market for much of the session. Volume increased on the NYSE by almost 10.0% but on the Nasdaq by a more modest 1.2%. By the closing bell, declining volume topped advancing volume by a ratio of 9.1 to 1 on the NYSE and by 3.9 to 1 on the Nasdaq. Monday was a distribution day for the market as trade increased during the selloff. However, the price and volume action was a far cry from the capitulation we witnessed in the market several weeks ago.

For the fourth time in as many days the Market Vectors Junior Gold Miner ETF (NYSE:GDXJ) found resistance at its 20-day EMA yesterday. Further, GDXJ closed near session lows and at the bottom end of the six day trading range. A volume fueled move below the six day low of $29.60 could provide a shorting opportunity in this ETF.

Yesterday, on a burst in volume, the Direxion Daily Emerging Markets Bear 3X Shares ETF (NYSE:EDZ) reversed off its nine day lows and closed near session highs. A move above resistance at $24.49 could present a buy entry trigger for EDZ. We are monitoring this setup closely for a possible long entry.

Via intraday alert we entered a long position in ProShares UltraShort Euro ETF (NYSE:EUO) yesterday. Trade details are available to our subscribers in the watchlist segment of the newsletter.

As anticipated the market fell under selling pressure at key resistance yesterday. The uptick in volume that accompanied the selloff suggests that market bears may not be quite yet ready to relinquish control. The next few sessions will give us critical insight into the commitment of bulls in most recent move higher and we remain cautious with respect to the short side of the market. Earnings season is once again in force with AAPL and INTC set to announce today.

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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