Wagner Daily: Waiting For A Bounce (BZQ, XHB, SPY, IWM, QQQ, DIA)

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July 29, 2011 10:29am NYSE:BZQ NYSE:XHB

Stocks slid lower on Thursday as trade declined. The morning session showed promise as stocks tacked on solid gains. However the market hit its peak at mid day and from that point on it was a downhill descent into the close. By the closing bell four of the five major indices were trading in the


 red. The Nasdaq (NASDAQ:QQQ) was the lone holdout as it managed to close a mere 1.5 points above break even. The Dow Jones Industrial Average (NYSE:DIA) fell 0.5% on the day while the S&P MidCap 400 shed 0.4%. Both the S&P 500 (NYSE:SPY) and the small-cap Russell (NYSE:IWM) 2000 lost 0.3%.

Thursdays price action brought with it a day of mixed internals. Volume fell across the board yesterday but this might have been expected given Wednesday’s sharp increase in trade. Still, turnover closed well above its 50-period moving average which, given the intraday price reversal, does not seem to bode well for bulls. Declining volume outpaced advancing volume by a ratio of 1.9 to 1 on the NYSE and 1.3 to 1 on the Nasdaq. Although we cannot classify yesterday as a distribution day for the market, the relatively high level of volume and negative price action into the close suggests that institutions may have been selling into strength.

The following two charts of the SPDR S&P Homebuilders ETF (NYSE:XHB) suggest that it may present a shorting opportunity into a bounce. Since losing support of its 200-day MA on July 25th XHB is now at the key support level of its two year uptrend line. Because XHB has been selling off for almost a week, we are looking for a bounce to possibly enter a short position in this ETF. Notice in the second chart of XHB that it has formed a head and shoulders like pattern that further supports the likelihood that a shorting opportunity may exist for this ETF.


Since October of last year the ProShares Ultrashort MSCI Brazil ETF (NYSE:BZQ) has been forming a base following a long term down trend. Since April of this year BZQ has been setting a sequence of “higher lows” as it has found its way back above the 20-day EMA, 50-day MA and 200-day moving average. Notice also that the 200-day moving average is now flattening out and with another thrust higher in BZQ it will begin up-sloping for the first time in two years. A volume aided move back above the July 27th high of $16.65 may provide a buying opportunity in this ETF. We will be monitoring BZQ closely for a possible long entry.

What began as a solid day ended on a sour note for Wall Street. The market continues to deteriorate as more and more stocks are either testing or losing support of their 200-day moving averages. The failure of the market to hold onto solid gains following a day of carnage does not bode well for Friday’s prospects. With the current uncertainty in the market we will not be surprised to see further price erosion on Friday. Since this week’s reversal was swift and sharp, our research has not presented us with quality risk reward setups to enter short positions. Rather than chase the market we prefer to take the cautious approach and wait for the next opportunities to present themselves.


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]


DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter “The Company”) is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock’s actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter “The Newsletter”). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.


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