Wagner Daily: A Closer Look At These ETFs (IWC, XHB, IDX)

The major indices gapped up powerfully to begin Thursday’s session. From the opening gap, to the closing bell, the bulls were firmly in command. Buying was both strong and broad based. The Dow Jones Industrial Average “roared” to its biggest gain in two months. Most of the action occurred during the initial 90 minutes of trading. From 11:00 am until the 2:30 pm reversal period, the major averages consolidated, before rallying into the close. The small-cap Russell 2000 led all indices, as it posted a 2.6% gain. The demand for large cap stocks lifted the DJIA to a 2% gain. Both the S&P 500 and the S&P MidCap 400 closed up 1.9% on the day. The Nasdaq lagged slightly, as it posted a 1.5% gain.

Total volume was up sharply in Thursday’s trading. The Nasdaq posted a volume increase of 26%, day over day. NYSE turnover soared by an impressive 18%. On the NYSE, the ratio of a advancing to declining volume was a very impressive 9 to 1. The ratio on the Nasdaq was a more modest 3 to 1, in favor of advancing volume. The divergence between the indices may suggest that some investors were selling higher beta stocks into the rally. Nonetheless, market internals were strong. Thursday was clearly an accumulation day. Institutional investors were in command.

In Wednesday’s newsletter, we placed the iShares Russell Microcap Index (NYSE:IWC) on our official watchlist. IWC hit our buy “trigger” of $45.03, and we entered the trade. The 15 days of consolidation by this ETF, provided the “springboard” for the rally. This zone of consolidation now serves as a formidable level of support. IWC is now well positioned to continue its rally.

Many ETFs that have recently underperformed the market, broke above critical resistance levels today. The SPDR S&P Homebuilders ETF (NYSE:XHB), provides a good example. XHB made an impressive move today. But, unlike much stronger ETFs, today marked the first day since June, that XHB rallied above the 200-day MA. Further, a quick look at the weekly chart of XHB, provides a clear snapshot of what looms. The 200-week MA represents major resistance for this market laggard. A leading indicator that a rally is reaching exhaustion is when money begins moving into underperforming issues.

In the November 4th newsletter, IDX was mentioned as a potential buy entry. Although the Market Vectors Indonesia Index ETF (NYSE:IDX), did not break out with the market today, it is nonetheless poised, to rally to new highs. IDX continued its multi-week consolidation on Wednesday, by closing at the top of the one month trading range. A break above Thursday’s high, marks a buy target for this ETF. As such, we are placing IDX on our watchlist. Details are provided below for our members.

In reviewing ETFs for today’s newsletter, it was quite noticeable that most ETFs formed the same pattern. Virtually everything looked the same. Even though today’s move was powerful, we do not recommend “chasing” the rally. We advise to begin watching for strong performers, that pullback into support

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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