See Saw Session In The Markets (EFZ, SRS, SPY, IWM, DIA, QQQ)

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September 28, 2011 9:55am NYSE:EFZ NYSE:SRS

Equities moved higher for a second consecutive day but closed well off session highs. In a follow up to Monday’s action, stock prices whipsawed again but Tuesday’s session ended with stocks in retreat. All five major indices closed higher as smaller cap issues led the advance. The S&P MidCap 400 tacked on 2.2% while the small-cap

Russell 2000 (NYSE:IWM) gained 1.9%. The Dow Jones Industrial Average (NYSE:DIA), Nasdaq (NASDAQ:QQQ) and S&P 500 (NYSE:SPY) posted gains of 1.3%, 1.2% and 1.1% respectively.

Market internals flashed a bullish signal but we are wary to classify yesterday’s action as an accumulation day for the broad market due to the significant intraday reversal. Volume was up across the board with the Nasdaq seeing an increase in turnover of 5.7%. On the NYSE, trade jumped by an impressive 31.3%. Advancing volume topped declining volume by a ratio of 3.8 to 1 on the NYSE and 3.5 to 1 on the Nasdaq.

We were stopped out of our position in (NYSE:SRS) yesterday resulting in our first losing trade of the month. As discussed in yesterday’s newsletter we considered this trade as slightly higher risk and we therefore took small position size and maintained a tight stop. However, given the reversal candle formed by SRS yesterday, this ETF now presents a possible long entry above yesterday’s high of $16.45. We are monitoring this setup carefully for a possible re-entry.

Yesterday the ProShares Short MSCI EAFE ETF (NYSE:EFZ) gapped down and undercut its 20-day EMA before reversing to close near the day’s high. This type of price action serves to sweep poorly placed stops and shake out weak hands. A move back above yesterday’s high of $54.48 could provide a short entry trigger for this ETF. We are placing EFZ on the watchlist. Trade details are available to our subscribers in the watchlist section of the newsletter.

For the second time in as many days market leaders struggled suggesting that the most recent two day rally is being led by market laggards. This type of price action must be taken into consideration when evaluating the bearishness or bullishness of a market. In a healthy market stocks such as AAPL, GMCR and AMZN would have rallied to new highs on a day like yesterday.

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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