Which Way Will The Markets Go? (BZQ, XRT, SPY, DIA, IWM, QQQ)

Stocks gained back most of Wednesday’s losses to close near session highs. However, trade was light. All five major indices ended the day in the black. The S&P MidCap 400 and the small-cap Russell 2000 (NYSEARCA:IWM) tacked on 1.4% and 1.3% respectively. The Dow Jones Industrial Average (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) both added 1.1%, while the Nasdaq (NASDAQ:QQQ) was the day’s laggard as it advanced just over 0.9%.

Market internals were mixed on Thursday. Volume slipped on the Nasdaq by 4.6% and on the NYSE by 3.0%. Nonetheless, advancing volume outpaced declining volume by a fairly wide margin on both exchanges. By the closing bell the spread ratio stood at +11.7 to 1 on the NYSE and +4.8 to 1 on the Nasdaq. Due to the light volume, yesterday was clearly not an accumulation day. However, given the fact that the broad market reclaimed most of the losses incurred on Wednesday, we are now poised to once again attempt a breakout above resistance.

In light of yesterday’s performance, the DJIA and the SPY are both within a few points of breaking above the neckline of an inverted head and shoulders pattern. The same holds true for the IYT. IYT is still on the watchlist. The charts below are self explanatory.

The ProShares MSCI UltraShort Brazil ETF (NYSEARCA:BZQ) gapped above resistance on Wednesday on a burst of volume. Yesterday, BZQ pulled back on light volume and maintained support above the 20-day EMA and 50-day MA. A move above the two day high of $19.60 could provide a buying opportunity in this inverse ETF. We are placing BZQ on the watchlist. For our subscribers, trade details are posted in the watchlist section of the newsletter.

Yesterday, on increasing volume, the SPDR S&P Retail ETF (NYSEARCA:XRT) formed a reversal candle and closed near session highs. A move above the three day high of $53.24 may provide a buy entry trigger for XRT. We are also placing XRT on the watchlist.

Our open positions showed mixed performance. EUO remains strong but faded into the close. Given the recent run up in EUO it may take a little time for this trade to play out. YCS gapped down and struggled on Thursday and it now appears that it may hit its stop. We now have four watchlist candidates. Two are long plays and two are short plays. In the current light volume holiday action, the market continues to find it hard to establish an identity. We wouldn’t be surprised to see the market languish once again on Friday.

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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