Wagner Daily: A Closer Look At These ETFs (ECH, EWH, EZA)

For the third consecutive day, stocks closed mixed with little to show from the day’s activity. All five major indices spent the session handcuffed in the four day trading range. The Dow and the S&P 500 appeared to be heading for new territory, but both were met with high volume selling into the close. The Dow Jones Industrial Average and the S&P 500 posted gains of 0.2% and 0.1% respectively. Technology stocks did not fare as well. Both the Nasdaq and the S&P MidCap 400 slid 0.2%, while the small-cap Russell 2000 finished down by 0.3%. Overall, the market maintained its sluggish holiday pace.

Market internals also ended the day mixed. Turnover was up on Tuesday, with much of the action occurring during the first hour and last hour of the session. Turnover rose by 16% on the NYSE and 3% on the Nasdaq. Despite the increase, total volume ended the day well below the 50-day volume moving average on both indices. Advancing volume outpaced declining volume on the NYSE, while the opposite occurred on the Nasdaq. The advancing volume to declining volume ratio on the NYSE ended the session at a plus 1.2 to 1. However, the ratio on the Nasdaq was 1.2 to 1 in favor of declining volume.

In Tuesday’s newsletter we discussed the iShares MSCI Chile Investable Market Index ETF (NYSE:ECH). We stated, “The setup we are looking for is an undercut of support at the 50-day MA followed by a quick reversal back above this key mark”. During yesterday’s session, ECH did in fact undercut the 50-day MA on a spike in volume. Further, it closed below this moving average. For ECH to present a possible long entry, it must now reverse and rally back above the 50-day MA. Ideally, we would like to see a “gap-up reversal” in the next two to four trading days. This type of price action would likely signal further upside for this ETF.

The iShares MSCI Hong Kong Index ETF (NYSE:EWH), is precariously clinging to an eight day support level just below its 20-day EMA and 50-day MA. A drop below the December 16th Low of $18.66 could present a shorting opportunity for this ETF. Although EWH is not yet being placed on the watchlist, we are monitoring it carefully for an entry. For our subscribing members, an intraday alert will be sent should we decide to enter this trade.

The iShares MSCI South Africa Index ETF (NYSE:EZA), is attempting to break above key resistance at $73.00. This is the third time in the past two months that EZA is testing this mark. A volume fueled move above yesterday’s high of $73.28 provides a possible buy trigger for this ETF. A strong increase in volume is likely the key to this setup.

The broad market continues to exhibit indecision. Recent ETF scans have provided fewer quality long setups. The lack of volume and overall weak market internals suggest through the end of the year.

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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