Early morning selling gave way to a resilient market, as all but one of the major indices closed higher on Tuesday. Despite the market’s recovery there was some unusual divergence in the market. The S&P MidCap 400 ended the session 0.9% higher, but the small-cap Russell 2000 struggled its way to a flat finish. This is unusual since the two indices tend to be highly correlated. The Dow Jones Industrial Average and the Nasdaq both managed 0.4% gains, while the S&P 500 eked out a 0.1% improvement for the session.
Market internals ended the day mixed. Turnover on the Nasdaq was flat, while the NYSE saw a second consecutive day of strong volume. Volume on the Big Board finished 9.4% higher day over day. However, unlike Monday, declining volume was greater than advancing volume on the NYSE. The day ended with the ratio at 1.4 to 1 in favor of declining volume. On the Nasdaq, advancing volume was higher than declining volume by a factor of 1.5 to 1.
Our position in PBW performed well yesterday, as it set a new high on increasing volume. PHO continued to consolidate for a fourth consecutive day and appears poised for another advance. UNG, GDXJ and EPU all spent the day in correction/consolidation mode.
Yesterday we opened a long position in the PowerShares DWA Developed Markets Technical Leaders ETF (NYSE:PIZ). We liked the trade because it gapped up on strong volume and held the opening gap (At the January 4th high). PIZ spent the entire day consolidating and closed near the day’s high. Trade details were sent to our members via an intraday alert and can be found in the watchlist segment of the newsletter. (Please note two corrections to yesterday’s newsletter: the description of PIZ was incorrectly referred to as Developing rather than Developed, and the potential trigger price for PIZ was referenced as $23.41 instead of $22.41. We apologize for the inaccuracies).
The Guggenheim Frontier Markets ETF (NYSE:FRN) is exhibiting signs of relative weakness and may soon present a shorting opportunity. Yesterday, FRN sold off on a sizeable increase in volume. Further, since mid November, FRN has been consolidating while the Accumulation/Distribution line has been in a significant downtrend. This bearish divergence suggests institutional selling. A break below $23.50 could provide a short entry trigger for this ETF.
The PowerShares Listed Private Equity ETF (NYSE:PSP) appears to be on the verge of breaking out of a 12-week consolidation pattern. A move above $11.22 may present a buying opportunity for this ETF.
We continue to maintain a bullish view of the market. However, exuberance seems to be on the rise, which is always of concern during a protracted bull move.
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]