Watch Out Below; Caution Ahead In The Markets? (SMN, DIA, QQQ, SPY, IWM, GDXJ)

Stocks finished modestly higher yesterday, but well off session highs. The day started off well with the Nasdaq (NASDAQ:QQQ), S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average (NYSEARCA:DIA) trading as high as 1.7%, 1.3% and 0.8% respectively. However by session’s end, the Nasdaq closed just .6% higher, while the S&P 500 posted only a modest gain of 0.3%. The Dow Jones Industrial Average closed out the session fractionally lower. The S&P MidCap 400 added 1.0%, while the small-cap Russell 2000 (NYSEARCA:IWM) improved by 0.9%. Both of these indices also closed well off the day’s highs.

Market internals were positive. However, Friday was quadruple options expiration, which makes the internals difficult to accurately gauge. Further, although stocks ended higher, the intraday price action was bearish. Volume spiked by 43.7% on the Nasdaq and 48.4% on the NYSE. Again, this massive surge in volume is in large part attributable to options expiration. Advancing volume was higher than declining volume on both exchanges. By the closing bell, the spread ratio stood at +1.8 to 1 on the NYSE and at +1.3 to 1 on the Nasdaq. We are neutral with regard to Friday’s internals due to the divergence between intraday price action, and higher volume brought on by options expiration.

Recently, we made a quick profit shorting the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ). Over the past three sessions GDXJ has been forming a base and it appears that it may be ready for a bounce. GDXJ may provide a shorting opportunity on a rally into the 20-day EMA. We will be monitoring this ETF closely for a possible re-entry.

Yesterday, the ProShares UltraShort Basic Materials ETF (NYSEARCA:SMN) formed a reversal candle as it severely undercut its 50-day MA, but reversed to close back above this key mark. A volume fueled rally above $20.20 could provide a long opportunity in this ETF. We are adding SMN to the watchlist. Trade details are available in the watchlist section of the newsletter.

Our open position in AGA continues to consolidate just above $20.00. As a reminder, we raised the stop in this ETF to breakeven. Quadruple options expiration generally brings whippy price action to the market, and Friday was no exception. Stocks closed at session lows and also near the lows for the week. The longer the market consolidates at the lows of this most recent selloff, the more likely the next move will be lower.

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

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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