Stocks lost ground across the board on Tuesday, as volume climbed. The small-cap Russell 2000 drifted lower by 0.7%, while both the tech rich Nasdaq and the S&P MidCap 400 ended the day lower by 0.5%. The Dow Jones Industrial Average and the S&P 500 both shed 0.3% on the session.
Market internals were unanimously negative on Tuesday, suggesting distribution by institutional investors. Volume was up on the NYSE by 12% and on the Nasdaq by 4%. Declining volume bested advancing volume on the NYSE by a factor of 1.4 to 1, and on the Nasdaq by 2 to 1.
Yesterday we sent an intraday alert that we were exiting our long position in PHO. Due to recent lack of follow through in leading ETFs, we decided to protect our gains. We sold near the high of the day and the trade netted just under an $800 profit. URA suffered a sharp day of distribution on heavy volume. The position is now at breakeven. If we lose the two day low, we may decide to exit URA before reaches its stop.
The First Trust ISE Reserve Natural Gas ETF (NYSE:FCG) has spent the past two weeks consolidating along its 20-day EMA. Yesterday, FCG formed a tight inside candle and now appears ready to advance to a new 52 week high. A rally above $21.20 could present a buy trigger for FCG. Due to the rash of failed breakouts in the market, we will be watching for strong volume to accompany any move to higher ground.
The ProShares Short MSCI Emerging Markets ETF (NYSE:EUM) has recently rallied above the 20-day and 50-day moving averages, on a sequence of higher highs and higher lows (On expanding volume). Yesterday, EUM consolidated in a tight range on declining volume, following a reversal day. Following a reversal candle, this type of price and volume activity is often considered a bullish signal. A move above yesterday’s high of $32.05 could provide a buying opportunity in EUM. We are placing this ETF on the watchlist. Trade details can be found in the watchlist segment of the newsletter.
We continue to maintain a long side bias for the broad market. However, quality long setups continue to struggle with follow through. Under these circumstances we are inclined to trade smaller size and/or take profits/cut losses quickly.
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]