Wednesday was a difficult day for Wall Street. Stocks were punished following a vicious and swift market reversal that began around 11:00 am and continued into the close. All of the major indices closed within the lower third of their intraday trading ranges. The S&P MidCap 400 and the small-cap Russell 2000 fared the best on the day, as they closed down 1.0% and 1.1% respectively. The Nasdaq plunged by 1.9% while the Dow Jones Industrial Average and the S&P 500 both shed 2.0% on the session.
Market internals were decidedly negative on Wednesday, as volume was up and selling was broad based. Turnover on the Nasdaq increased by 10% and on the NYSE by 11.4%. Declining volume overpowered advancing volume by a ratio of 10.1 to 1 on the NYSE and 5.6 to 1 on the Nasdaq. Wednesday would appropriately be categorized as a distribution day for the market.
Due to the recent sharp increase in volatility, it is a good time to evaluate the health of the broad market. Below are charts of the Nasdaq, Dow and SPY. The analysis is self explanatory and should provide a clear picture of the recent damage done to the market.
Yesterday, we sent an intraday alert that we were opening a trade in the ProShares Short MSCI Emerging Market ETF (NYSE:EUM). Our Entry was triggered by the sharp reversal in the market around 11:30 am. This late morning reversal carried EUM above the 1 hour high and we entered the trade. A move above yesterday’s high of $32.62 could provide another entry trigger. Above this level we will consider adding to the trade. Trade details can be found in the Open Positions segment of the newsletter.
It is noteworthy that market leadership took a hit as AAPL dropped over 5% on the day. This Friday is triple witching options expiration day which could bring whipsaw trading action. As long as volatility remains high, we will continue to monitor and communicate potential setups on an intraday basis. Nonetheless, If our research uncovers setups that meet our technical criteria we will put them in the newsletter.
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]