Stocks rebounded on Monday, but on light trade. All five major indices closed the day in positive territory. The small-cap Russell 2000 led the rally, as it closed the session higher by 0.9%. The S&P 500 and the S&P MidCap 400 both rallied by 0.8% yesterday. The Dow Jones Industrial Average added 0.6%, while the Nasdaq posted a 0.5% improvement.
Market internals ended the day mixed. Volume declined significantly across the board. Turnover fell 18% on the Nasdaq and 16% on the NYSE day over day. However, advancing volume outpaced declining volume on both indices. The ratio of up to down volume ended the day at 2.2 to 1 on the NYSE and 1.4 to 1 on the Nasdaq.
Yesterday, we covered our short position in (NYSE:FRN) to lock in a healthy profit. FRN was approaching support at the 200-day MA. Since FRN was close to its target, we felt it made sense to cover the position into weakness. In Monday’s newsletter we discussed the weakness exhibited by (NYSE:ECH). Yesterday, ECH performed poorly against the market. It closed near the low of the day. A drop below $71.10 should result in additional selling pressure for this ETF. We are placing ECH on the watchlist. For our subscribing members, trade details are posted in the watchlist segment of the newsletter.
The iShares Dow Jones Transportation Average ETF (NYSE:IYT) has been under significant selling pressure for the past ten days. A move below the January 28th low of $90.06 may provide a short entry trigger for this ETF. We are carefully monitoring IYT as possible short candidate.
Monday’s market action was typical following a sharp round of selling. Market internals suggest that yesterday’s move lacked institutional support. Over the past several sessions it has become increasingly difficult to identify quality long setups. For the moment, it appears as if the market is positioned for further selling.
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]