These 3 ETFs entries may trigger any time
After a positive start to Monday’s
session, the broad market dropped into negative
territory at mid-day, but stocks recovered during the final hour and posted mild
gains across the board. The Nasdaq Composite
(
COMP |
Quote |
Chart |
News |
PowerRating), which gained 0.3%, put
in its third consecutive day of gains, but the index closed right at resistance
of its 200-day moving average. The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating) also closed 0.3% higher,
while the Dow Jones Industrials
(
DJX |
Quote |
Chart |
News |
PowerRating) gained 0.6%. The midcap S&P 400 Index
(
MDY |
Quote |
Chart |
News |
PowerRating) bounced 0.5%, but the smallcap Russell 2000 Index
(
RUT |
Quote |
Chart |
News |
PowerRating) showed
relative weakness and was unchanged. Like the Nasdaq, the Russell also closed
right below its 200-day MA. Each of the major indices closed near their best
levels of the session, but just below their morning highs.
Considering the market’s weakness throughout the first half of
the month, it was positive to see the major indices register another day of
gains, but declining volume once again failed to confirm the bounce. Total
volume in the NYSE declined by 8% yesterday, while volume in the Nasdaq was 16%
lighter than the previous day’s level. Although the Nasdaq has closed higher for
the past three days, it is important to note that volume has declined on each of
those days as well. This tells us that institutions have not yet shown any signs
of returning to the market. As such, one would be correct in viewing the recent
bounce as a mere technical correction as opposed to the start of renewed buying
interest. A majority of this month’s down days have occurred on higher volume,
but each of the up days have occurred on declining volume. Until this trend
changes, it is wise to be net positioned on the short side of the broad market
(or in cash if you don’t have a margin account).
In the October 14 issue of The Wagner Daily, we
reported that we had taken profits on the last of our short positions and had
moved to cash in anticipation of a correction to the market’s weakness.
Specifically, we mentioned that we would like to see the S&P 500 rally up to the
1,195 to 1,200 level in order to provide us with low-risk entry points to short
the broad-based ETFs such as
(
SPY |
Quote |
Chart |
News |
PowerRating). Yesterday’s second day of gains put the
S&P at the 1,190 level and within striking distance of that major area of
resistance just below 1,200. Odds are good the S&P will now test that area of
resistance within the next few days. As such, regular subscribers will see we
are now stalking two different ETFs for new short entries if they fail at key
resistance levels in the coming days. The entire broad market bounce has lacked
conviction, which gives us the confidence to sell short into the current bounce.
As mentioned earlier, both the Nasdaq Composite and the
Russell 2000 Index closed just below resistance of their 200-day moving averages
Monday. Most likely, we will see both indices have trouble recovering back above
their 200-day MAs, which will act further as a weight on the S&P.
(
IWM |
Quote |
Chart |
News |
PowerRating) (iShares
Russell 2000 Index) is now providing us with a short entry point that provides a
good risk-reward ratio. If you short in this vicinity and the IWM rips back
above its 200-day MA, you can get out with a small loss. But if the 200-day MA
enables its primary downtrend to resume from here, the profit potential on the
short side is much greater than the risk because there is only minimal price
support below. Remember that support of the weekly uptrend line on IWM was
broken last week as well, which further adds to the resistance. The daily chart
below illustrates the bounce into both the 200 and 10-day moving averages:
Similarly, the daily chart of the Nasdaq Composite shows that
the Naz will require strong buying interest to overcome the overhead supply and
technical resistance of both its 200 and 10-day moving averages as well:
Perhaps the biggest factor that can impact the broad market’s
direction in the short-term is the plethora of quarterly corporate earnings
reports on deck this week. Big players scheduled to report in the pre-market
today are: Johnson and Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating), 3M Company
(
MMM |
Quote |
Chart |
News |
PowerRating), and Merrill
Lynch
(
MER |
Quote |
Chart |
News |
PowerRating). After the close, all eyes will be on both Intel and Motorola
earnings reports. Yahoo!
(
YHOO |
Quote |
Chart |
News |
PowerRating), Ebay
(
EBAY |
Quote |
Chart |
News |
PowerRating), and Google
(
GOOG |
Quote |
Chart |
News |
PowerRating),
three of the biggest Internet players, are scheduled to report earnings today,
tomorrow, and Thursday respectively. Obviously, any one of these companies has
the power to move not only their industry sectors, but the entire broad market
if the surprise is great enough. Caution is therefore warranted with all new
positions this week, although the charts clearly continue to favor the short
side over the long. Those of you who trade individual stocks and sector ETFs
should be aware of earnings dates of any key stocks, which you can easily do by
referencing the freeYahoo!
Finance earnings calendar.
Open ETF positions:
We are currently flat. (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 .