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

In a whipsaw trading session stocks closed mixed on higher volume. The US equity markets began the day with a massive gap down only to recover steadily throughout the day to close at or near session highs. The technology rich Nasdaq (NASDAQ:QQQ) led the comeback as it posted a 0.7 gain for the session. Both the small-cap Russell 2000 (NYSE:IWM) and S&P MidCap 400 ended the day flat while the Dow Jones Industrial Average (NYSE:DIA) and S&P 500 (NYSE:SPY) shed 0.5% and 0.3% respectively.

Internals were mixed on the session. Volume spiked across the board. Both the Nasdaq and the NYSE saw turnover rise by approximately 29.0%. The spread ratio painted a slightly different picture as declining volume topped advancing volume on the Big Board by a ratio of 1.9 to 1 while on the Nasdaq advancing volume held the upper hand by a ratio of 1.7 to 1. As a result, the DJIA and S&P 500 saw distribution days while the Nasdaq experienced an accumulation day. The big spike in volume left little doubt that institutions were a major force in yesterday’s move.

Via intraday alert we entered a short position in COW yesterday. Trade details are available to our members in the open position segment of the newsletter.

The iShares Malaysia (Free) Index ETF (NYSE:EWM) provides one of the best examples of relative strength that we’ve seen in quite some time. During the most recent broad market selloff and the whipsaw action of the past three sessions, EWM has not once set a new swing low. Rather, it has only tested support and consolidated. EWM provides several potential long entries. The first would be a move and consolidation above yesterday’s closing high. The second setup would involve an inside trading day and possibly several days of sideways action followed by a move above this consolidation. The final potential long entry could be a move above the 20-day EMA that hold intraday. We are monitoring EWM closely for a possible entry.

The iShares Russell 3000 Index ETF (NYSE:IWV) may have put in an interim bottom. Yesterday, this ETF tested support of the previous reversal candle, the 200-day MA and it’s 2 year trendline. Further, IWV formed a second reversal candle as it tested this support level. Several days of consolidation could be just what IWV requires to begin a move back to its prior highs.

It is noteworthy that all five major indices formed distinct bullish reversal candles and we view this as significant enough to possibly neutralize any bearish effects of the distribution day on the DJIA and S&P 500. To confirm this opinion we would want to see a follow through day above yesterday’s high on both of these indices.

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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