Markets: Moving Higher But Be Careful (XRT, FXD, SPY, DIA, IWM, QQQ)

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November 4, 2011 10:07am NYSE:FXD NYSE:XRT

On whipsaw price action, stocks rallied strongly after early session selling, to close near the highs of the day. The day began with the market gapping higher followed by sharp selling in the first half hour of trade. However, stocks recovered quickly and rallied virtually the entire day and surged into the close.


All five major indices closed well in the black with high beta issues leading the charge. By the closing bell the small-cap Russell 2000 (NYSEARCA:IWM), S&P MidCap 400 and the Nasdaq (NASDAQ:QQQ) were up 2.5%, 2.4% and 2.2% respectively. The S&P 500 (NYSEARCA:SPY) tacked on 1.9% while the Dow Jones Industrial Average (NYSEARCA:DIA) finished 1.8% higher.

Market internals were bullish on Thursday. Volume increased on the Nasdaq by 9.2% and on the NYSE by 10.4%. Further, advancing volume outperformed declining volume by a factor of 5.5 to 1 on the NYSE and 3.5 to 1 on the Nasdaq. The higher volume and strong price action into the close suggest that institutions were actively buying. Thursday was a clear accumulation day on Wall Street.

Our watchlist candidate, PPH, hit its trigger price yesterday and we entered the trade. PPH performed well yesterday and by the close we were up about 0.7%. Via an intraday alert we also entered a long position in the SPDR S&P Retail ETF (NYSEARCA:XRT). We liked the trade because XRT had formed a reversal candle on Wednesday after early session selling pressure. XRT offered a reasonable risk/reward entry just above Wednesday’s high. Trade details are available to our members in the open positions section of the newsletter.

The First Trust Consumer Discretionary AlpaDEX ETF (NYSEARCA:FXD) appears ready for another move higher. Since losing support of its 200-day MA on November 1st, FXD has undercut and tested support of its 20-day EMA twice but both times managed to rally and close near session highs. A volume assisted move back above yesterday’s high of $20.59 could provide a buying opportunity in this ETF.

The market continues to demonstrate resiliency. In the face of overwhelmingly negative news it continues to consolidate near the highs of this recent run. Nonetheless, as stated in yesterday’s newsletter, we must remain keenly aware that a significant number of distribution days have occurred over the past two weeks and it would only take two or three more days of distribution over the next two weeks to put the current rally in jeopardy.


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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