Wagner Daily: A Closer Look At These ETFs (ECH, VNQ, KBE, IWM, SPY, DIA, QQQ)

Stocks lost ground on Tuesday on higher trade but closed off session lows. The major indices all closed down on the session with smaller cap and technology stocks leading the decline. The small-cap Russell 2000 (NYSE:IWM) shed nearly 2.0% while the S&P MidCap 400 slid 1.4%. The Nasdaq (NASDAQ:QQQ) fell just over 1.2%. The S&P 500 (NYSE:SPY) and the Dow Jones Industrial Average (NYSE:DIA) managed to keep losses contained as they ended the session lower by 1.0% and 0.7% respectively.

Market internals were moderately bearish. Volume increased by 6.9% on the Nasdaq and by 6.1% on the NYSE. Declining volume topped advancing volume by almost 5 to 1 on the NYSE and 2.6 to 1 on the Nasdaq. The convergence of market internals indicates that institutional investors were actively selling and we would therefore classify Tuesday as a distribution day in the broad market.

Yesterday, as the market recovered from session lows, the iShares MSCI Chile Investable Market ETF (NYSE:ECH) gapped down and closed near the low of the day. This ETF has been showing relative weakness for quite some time and is once again poised for another selloff. A move below yesterday’s low of $63.94 could be the catalyst for further selling in ECH.

Since shattering support of its two year uptrend line and its 200-day MA, the Vanguard REIT ETF (NYSE:VNQ) has rallied back into resistance of its 20-day EMA. An “overcut” of this key mark and/or the 200-day MA could provide the ideal short entry trigger for this ETF. We are monitoring VNQ carefully for a potential short entry.

The SPDR Series KBW Bank ETF (NYSE:KBE) has been languishing in a trading range near its 52-week lows while the broad market has been moving higher. This relative weakness is an indication that institutions may be distributing this ETF into strength. A move below the two day low of $19.00 may provide a shorting opportunity in this ETF.

The market appeared as if it might roll over yesterday but a late day surge prevented what could have been a very ugly day. With yesterday’s action, many ETFs are close to forming legitimate setups that meet our trading criteria. We continue to be patient as the next set of trades develop.

Yesterday, via intraday alert we purchased BZQ. Trade details are available to our subscribing members in the open positions section of the newsletter.

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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