Wagner Daily: Buy Entry Point In This Short Oil ETF? (DTO, XLF, DIA, QQQ, SPY, IWM)

For a second consecutive day equities finished higher on light volume. All five major indices ended the session marginally in the black. The Dow Jones Industrial Average (NYSE:DIA) fared the best as it added 0.4% by the closing bell. The Nasdaq (NASDAQ: QQQ) and the small-cap Russell 2000 (NYSE:IWM) both managed to post modest 0.3% gains while the S&P 500 (NYSE:SPY) and the S&P MidCap 400 both advanced by 0.2% on the day.

Market internals were mixed on Thursday. Trading volume was lower for the second time in as many days. On the Nasdaq turnover was down by 6.5% while on the NYSE it fell by 2.3%. In a repeat of Wednesday’s performance, advancing volume was higher than declining volume. However, unlike Wednesday the ratio between the two landed only slightly in favor of advancing volume on both exchanges. By the closing bell the spread ratio posted a reading of 1.2 to 1 on the NYSE and 1.4 to 1 on the Nasdaq. Due to the light trade, Thursday would not be considered an accumulation day in the market.

The PowerShares DB Crude Oil Double Short ETF (NYSE:DTO) has been consolidating above both the 20-day and 50-day moving averages since gapping up on May 11th. This gap up broke a 3 month downtrend and has positioned this ETF for a possible trend reversal. As the market was rallying today, this inverse ETF maintained relative strength as it also rallied. This impressive price action makes it a possible long candidate. A retracement to the 20 and 50 day moving averages or a move above the two day high could present buying opportunities in DTO.

The S&P Select Financial SPDR ETF (NYSE:XLF) has been setting a sequence of lower highs since mid February. During this time it has tested support at $15.80 three times while price action has tightened. Further, XLF has consistently found resistance each time it has rallied into the 20 and 50 day moving averages since February. The next test of support may very well result in further downside for XLF. We are monitoring XLF carefully for a possible short entry.

Today is options expirations Friday. As always, we won’t be surprised to see whipsaw price action as options contracts settle. We generally avoid opening new positions on options expiration day due to the higher potential for unpredictable price swings.

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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