Wagner Daily: A Closer Look At These ETFs (EWJ, USO, SPY, DIA, QQQ, IWM)

For the second consecutive day stocks finished near session highs but once again on lighter volume. Despite the positive price action there was disparity among the major indices. The small-cap Russell 2000 (NYSE:IWM) and the Nasdaq (NASDAQ:QQQ) led the advance as they posted gains of 1.7% and 1.5% respectively. Both the S&P 500 and the S&P MidCap 400 tacked on 0.9% but the Dow Jones Industrial Average (NYSE:DIA) severely lagged the other indices as it could only muster a slim 0.4% improvement for the session. It is noteworthy that the Dow Jones Transportation Average surged an impressive 3.4% despite the Dow’s weak performance.

For the second time in as many days Internals were mixed. Turnover fell by a modest 2.5% on the Nasdaq and 2.5% on the Big Board. However advancing volume topped declining volume across the board. By the closing bell the ratio of advancing to declining volume rested at 3.2 to 1 on the NYSE and 5.4 to 1 on the Nasdaq. The last two days of higher price action has given all the signs of a bear market rally. Light volume rallies are always suspect when the broad market is down-trending. Nonetheless, we would still classify Tuesday as a follow through day and would not be surprised if the market were to rally for several more days.

Since gapping down on August 4th, the iShares MSCI Japan Index ETF (NYSE:EWJ) has been one of the weakest ETFs in the world market. EWJ is now just below resistance of its 20-day EMA. A move into this key moving average could present a short entry trigger for this ETF. We are monitoring EWJ for a possible short entry.

Since May of this year the United States Oil Fund LP ETF (NYSE:USO) has been down-trending along its 20 and 50-day moving averages. USO is no approaching resistance of its downtrend line, a former support level and the 50-day MA. An overcut of these key resistance levels could provide a quality shorting opportunity in this ETF. We are monitoring USO closely as a possible short candidate.

The market continues to struggle in its latest move higher. Although we can justifiably classify yesterday as a follow through day, the lack of turnover puts into question the sustainability of the current advance. For the moment, we are content to sit in cash and wait for the next wave of quality setups to develop.

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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