Wagner Daily: Volume Speaks Volumes (GMF, JJG, QQQ, IWM, SPY, DIA)

Stocks surged higher on Tuesday as volume increased. All five major indices closed in the black as the tech rich Nasdaq (NASDAQ:QQQ) led the advance by posting a 2.2% gain. The small-cap Russell 2000 (NYSE:IWM) and the S&P MidCap 400 improved by 2.0% and 1.9% respectively. The S&P 500 (NYSE:SPY) tacked on 1.3% while the Dow Jones Industrial Average (NYSE:DIA) was the day’s laggard. Still, the Blue chip index posted a gain of nearly 1.0%.

Tuesday’s internals were decidedly bullish. Volume rose across the board. Turnover on the Nasdaq improved by 14.0% and by 7.6% on the Big Board. Advancing volume overpowered declining volume on both major exchanges. The spread ratio ended the session at ended the day at positive 8 to 1 on the NYSE and 9.3 to 1 on the Nasdaq. The combination of strong price action with increasing volume suggests that institutions were actively involved in the day’s rally. Consequently we would categorize Tuesday as a clear accumulation day for the broad market.

The iPath Dow Jones AIG Grains ETF (NYSE:JJG) provides an excellent example of a fund that is exhibiting relative weakness to the broad market. In the chart below we have overlaid a line graph of the JJG with a line graph of the S&P 500. Starting from point “A” notice how the S&P 500 has formed a clear uptrend as it has set a sequence of higher highs and higher lows over the past five sessions. On the other hand, notice that JJG has been clearly range bound as it has been unable to develop upward momentum. What this comparative price action suggests is that JJG is trading with relative weakness to the broad market and that in the event of a market pull back, it is likely to sell off more quickly. By scanning for relative weakness (or strength) we are often able to identify the best short (or long) candidates in the event of a market reversal.

The SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF) has performed poorly as compared to the broad market over the past several weeks. Recently, the S&P 500 only tested its 200-day MA as GMF completely lost support of this key mark. Even though the market has been rallying for several days, GMF is still well below its 200-day MA. We are monitoring GMF as a potential short candidate near the convergence of resistance of the former uptrend line, 200-day MA and the declining 20-day EMA.

Yesterday’s price action and internals were impressive. However volume was a bit light on a relative basis. Neither the Nasdaq nor the NYSE was able to reach its 50-day volume moving average. Ideally we would like to see volume return to above average levels on “positive” days in the market as this would provide further substantiation that we may have found a bottom following the recent selling.

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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