If you’re short BBH, lookout for DNA today

The major indices spent
yesterday’s session consolidating near the prior day’s lows before finishing the
lethargic day near unchanged levels. The Nasdaq Composite made a feeble rally
attempt at mid-day, but traders quickly sold into strength and caused the index
to slide into negative territory. The Nasdaq recovered off its intraday low, but
still lost 0.3%. The S&P 500 followed a similar intraday pattern, but managed to
hold on to a 0.1% closing gain. Relative strength in the large cap stocks helped
the Dow Jones to advance 0.2%, but small and mid-caps showed the most weakness.
Both the Russell 2000 and S&P Midcap 400 indices fell 0.4%.

Curiously, turnover in the NYSE dried up to its lowest level of the year
yesterday. Total volume in the NYSE declined by 12%, while volume in the Nasdaq
was 6% lighter than the previous day’s level. The 1.36 billion shares traded in
the NYSE was the lowest volume day since December 29, a day that obviously sees
light annual activity because it falls between the Christmas and New Year’s Day
holidays. Volume in the Nasdaq was also well below average, but was not the
lightest of the year. To the dismay of momentum traders, volume in the NYSE has
only exceeded its 50-day average level one time within the past sixteen
sessions! Clearly, that helps to explain the broad market’s choppy and erratic
behavior that typically results from a lack of institutional participation. The
good news is that the commencement of quarterly earnings season will probably
bring trading activity back to life.

In yesterday’s Wagner
, we pointed out how the S&P finished last week just above support
of its multi-week trading range and its six-month daily uptrend line.
Because the index traded in a relatively narrow range and closed near the flat
line yesterday, the technical picture for the S&P has not changed. With the
uptrend line rising up from above, the S&P will be forced to make a decision
here. Either the uptrend remains intact and the S&P rallies back to the top of
its range, or it breaks support of the uptrend. If the latter occurs, it would
also correspond to a break below the low of the multi-week sideways range at the
1,291 area. In our eyes, either scenario would be equally welcome because a
volume surge and a new trend in either direction will likely result, and that
sure as heck beats the recent chop. To make matters even more interesting,
notice that the Dow has also come into support of its uptrend line and is
sitting right at the lows of its recent trading range:

The daily chart of the Dow is similar to the S&P 500 in that both indices are
coming into support of their uptrend lines and are sitting near the bottom of
their multi-week trading ranges. However, one distinct difference between the
two charts is that the Dow has been showing more relative weakness. When the S&P
rallied (albeit briefly) to a new 5-year high last week, the Dow barely budged.
Therefore, this relative weakness leads us to believe that any downward momentum
would be led more so by the Dow than the S&P.

Trading the broad-based ETFs such as
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(S&P 500) or
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(Dow Jones
Industrials) would have been very challenging during the past month. However, a
clear break of this convergence of support in either the S&P or Dow may present
a good risk/reward ratio for selling short SPY or DIA. Just be sure to wait for
an actual break to happen; don’t jump the gun in anticipation. As for the other
broad-based ETFs such as
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, or
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, the patterns are
not as clear.

Aluminum giant Alcoa
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kicked off corporate earnings season with the
announcement of its quarterly report after the close of trading yesterday. They
beat analysts’ estimates and the stock received an initially positive response
in the after-hours market. Pay close attention to how the S&P and Dow react to
that news today because that will tell us a lot about the current sentiment of
the markets. Weak markets tend to ignore good news, just as strong markets tend
to blow off bad news. Biotech behemoth Genentech
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reports after today’s
close, so be aware of that if you are still short the Biotech HOLDR
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any other biotech stocks.

In miscellaneous ETF news, yesterday saw the launch of a brand new ETF that
mirrors the price of the Crude Oil commodity. It is called the U.S. Oil Fund and
it trades under the ticker “USO.” Like the Gold Trust ETF
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, the Crude
Oil ETF is pegged to the price of the underlying commodity. One share of USO is
approximately equal to the price of a barrel of crude oil (less a small expense
fee that is built in to the ETF). So far, there are a total of three primary
ETFs that allow investors and traders to easily speculate on the price of
commodities with the same simplicity and minimal costs as trading a stock. They
are: Gold (GLD), Crude Oil (USO), and the Deutsche Bank Commodity Index (DBC).
An ETF that tracks the price of silver, (SLV), is expected to be launched later
this year.

Finally, well-known financial newspaper, Investors Business Daily,
recently interviewed us regarding our positive results of ETF trading over the
years. The article appears in today’s issue of the newspaper, or you can

view the article online by clicking here

Open ETF positions:

Short (partial) BBH (regular subscribers to

The Wagner Daily
receive detailed stop and target prices on open
positions and detailed setup information on new ETF trade entry prices. Intraday
e-mail alerts are also sent as needed.)

Deron Wagner is the head trader of Morpheus Capital Hedge
Fund and founder of Morpheus Trading Group (morpheustrading.com),
which he launched in 2001. Wagner appears on his best-selling video, Sector
Trading Strategies (Marketplace Books, June 2002), and is 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. He is also a frequent guest speaker at various trading and
financial conferences around the world. For a free trial to the full version of
The Wagner Daily or to learn about Deron’s other services, visit
morpheustrading.com or send an e-mail
to deron@morpheustrading.com