Wagner Daily: Don’t Have A COW If The Selling Continues (SEF, COW, IWM, QQQ, SPY, DIA)

Stocks closed lower on Wednesday on mixed volume. Stocks were slightly higher to flat for most of the session before succumbing to late session selling. All five major indices closed in the red with the small-cap Russell 2000 (NYSE:IWM) sustaining the most damage. The Russell shed 1.2% on the day. The Nasdaq (NASDAQ:QQQ), S&P 500 (NYSE:SPY) and Dow Jones Industrial Average (NYSE:DIA) all slid 0.7% while the S&P MidCap 400 lost 0.5%.

The day ended with market internals mixed. Volume rose on the NYSE by 2.0% but fell on the Nasdaq by 13.3%. Declining volume outpaced advancing volume on both exchanges. The spread ratio ended the day in favor of declining volume by a factor of 2.4 to 1 on the NYSE and 1.5 to 1 on the Nasdaq. Wednesday’s volume data suggests institutional involvement in the selloff on the NYSE but not on the Nasdaq. Consequently we would classify yesterday as a distribution day on the Big Board.

In the June 20th Newsletter we stated, “The iPath DJ-UBS Livestock Total Return Sub-Index ETN (NYSE:COW) recently lost support of its 10 month uptrend line on May 3rd and sold off sharply. Over the past two weeks COW has recovered from the lows but is now at resistance of its 50-day MA, 200-day MA and the former uptrend line. Now that COW is testing resistance we will be watching carefully for a reversal candle and other signs that the downtrend may continue.” Yesterday COW gapped down and closed near session lows just below its 200-day moving average. A move below the two day low of $30.04 provides a potential short entry trigger for this ETF. We are placing COW on the watchlist. Trade details are available to our subscribing members in the watchlist segment of the newsletter.

The ProShares Short Financials ETF (NYSE:SEF) gapped up yesterday but just as quickly, sold off and undercut its 200-day MA. However, by the day’s end SEF had reclaimed support of its 200-day MA and closed near session highs. A move back above yesterday’s high of $37.40 may provide a buying opportunity in this ETF.

For the moment the recent rally appears to be short lived. As of this writing both the Nasdaq and S&P Futures are down 0.4%. When combined with yesterday’s late session sell off, we have to assume for the moment that the downward pressure on the market will likely continue.

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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