The Wagner Daily: A Closer Look At These ETFs (EPU, SDS, DIA, QQQ, SPY, IWM)

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June 14, 2011 9:41am NYSE:DIA NYSE:EPU

Stocks began the day on a promising note but faded into the close. By the closing bell the major indices were mixed. The S&P MidCap 400, small-cap Russell 2000 (NYSE:IWM) and Nasdaq (NASDAQ:QQQ) shed 0.3%, 0.2% and 0.2% respectively. The S&P 500 (NYSE:SPY) closed up by 0.1% while the Dow Jones Industrial Average (NYSE:DIA) ended the day flat.


Market internals ended the day mixed. Volume fell by 10.7% on the NYSE and 6.7% on the Nasdaq. Declining volume continued its command over advancing volume on Monday. The spread ratio ended the session in favor of declining volume by a ratio of 1.1 to 1 on the NYSE and 2 to 1 on the Nasdaq. The combination of mixed price action and mixed internals points to a lack of institutional involvement in Monday’s session.

Our open short position in TUR acted well yesterday as it gapped up in the morning but sold off for most of the session. By the closing bell TUR was trading in the lower third of the day’s range. A move below Monday’s low of $61.75 will likely attract a flood of short selling activity.

Yesterday the Nasdaq Composite ($COMPX) hit a milestone as it touched its 200-day moving average for the first time since September 1, 2010. Rarely will an index lose support of its 200-day MA without first testing this key mark several times. Consequently, we anticipate that the Nasdaq will undercut the 200-day MA sometime over the next 2 or 3 sessions and then move higher for several days. Should the market bounce, we will be looking for ETFs that are exhibiting relative weakness during the rally as they should present the best shorting opportunities. We do however suggest caution on the short side (NYSE:SDS) of the market over the next several days. As long as the Nasdaq holds the 200-day MA and its two year uptrend line, the past 9 days of carnage will only be considered a market correction. However, if the Nasdaq, DJIA and S&P 500 all lose support of their 200-day moving averages, the market will likely undergo a severe trend reversal.

The iShares All Peru Capped Index (NYSE:EPU) has been consolidating near resistance of a recently formed gap, its declining 20-day EMA and declining 50-day MA. EPU could offer a shorting opportunity with a rally into these key moving averages or a move below the three day low of $40.27. We will be closely monitoring this ETF for a possible short entry.

Although the market has been showing subtle signs of recovering, every bounce has been met with resistance. For the moment, buyers do not appear willing to enter the market. Given the negative overtone in the market the question likely becomes will we even see a bounce before the broad market (S&P 500) tests the 200-day MA? Nonetheless, we are not interested in taking on new short positions after nine straight days of selling pressure.


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]


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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