After two days of deliberation at their recent lows, the major indices followed through with another broad-based wave of selling yesterday. Stocks opened flat, promptly dropped in the morning, traded sideways throughout the afternoon, then moved to new intraday lows in the final thirty minutes of trading. Breaking below pivotal support of its May low and 50-day moving average, the Nasdaq Composite tumbled 2.2%. The S&P 500 and Dow Jones Industrial Average suffered matching losses of 1.7%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 2.0% and 1.8% respectively. As with the massive sell-off on June 6, all the main stock market indexes finished at their dead lows of the day.
Total volume in both the NYSE and Nasdaq increased 2% above the previous day's levels, indicating increased institutional participation on the sell side. Although turnover only ticked mildly higher, note that trading had already been coming in above 50-day average levels for most of the past two weeks. Not surprisingly, market internals were ugly. In the NYSE, declining volume exceeded advancing volume by a margin of more than 5 to 1. The Nasdaq adv/dec volume ratio was negative by nearly 7 to 1.
One of the very few ETFs consolidating near its all-time high, poised for another breakout to fresh highs, is the Market Vectors Agribusiness (MOO). Designed to follow the price movement of the DAXglobal Agribusiness Index, which is comprised of forty different agriculture-related companies, MOO has managed to completely ignore recent weakness in the major indices. Since the S&P 500 ran into resistance of its 200-day MA on May 19, setting in motion its current downtrend, the benchmarket index has lost 6.4%. But during this same period, MOO has actually gained 1%. More importantly, the bullish consolidation of MOO's daily chart pattern remains intact, as does support of the 20-day exponential moving average below. A breakout above the June 5 high of $64.23, the proper trigger for buy entry, is annotated on the daily chart below. As always, remember it's risky to "jump the gun" and buy before MOO actually moves above the resistance level:
Yesterday, we spotted some interesting trading activity in the Market Vectors Russia (RSX), a strong ETF we've mentioned several times over the past week. On an average day, RSX trades about 700,000 shares. Yesterday, however, turnover jumped to 2.4 million shares, more than 3 times the average daily volume. It was also the highest daily volume RSX has historically traded in its short lifespan. When such volume spikes occur in stocks and ETFs, it is always the result of trading activity by mutual funds, hedge funds, pension funds, and other institutions. Although volume surges usually coincide with large percentage price movements, that was not the case with RSX.
Despite the sharply higher turnover, RSX didn't move more than a few cents yesterday. What does this mean? The general observation we've learned over the years is that if a stock or ETF trades on high volume, but the price is little changed, it's bullish if that situation occurs after a pullback, within an uptrend. This is usually indicative of stealth institutional accumulation that precedes a rally. Conversely, its bearish if the high volume with little price movement occurs at the top of an uptrend. This is equivalent to "churning" caused by institutional selling into strength.
While the U.S. markets plunged lower over the past week, RSX held in a tight range. Further, it found support at last week's lows, causing a near-term "double bottom" to be formed. Because it has held firm while the domestic markets sold off, RSX, along with MOO, should be one of the first ETFs to zoom higher when the main stock market indexes eventually find support and begin reversing. The daily chart of RSX below shows its tight holding pattern over the past week:
On the shorter-term hourly chart below, we've annotated the hourly downtrend line of RSX that began with the June 2 high. To capitalize on its relative strength, you might consider buying RSX when it breaks out above resistance of this downtrend line. A breakout above that level presents a buy point with a very positive risk/reward ratio. For more price confirmation, you might also wait for a move above the high of the past two days ($55.44):
The S&P 500 finished just 10 points (0.8%) above key support of its 61.8% Fibonacci retracement and April 2008 low (the 1,325 level). Yesterday, in The Wagner Daily, we illustrated this major area of price support on the daily chart of the S&P 500 SPDR (SPY). To reiterate our prior analysis, we view the 1,325 area as an ideal place to take profits on short positions and/or consider buying a few stocks or ETFs that have shown relative strength while the market sold off (such as RSX and MOO). Odds are pretty good the S&P will put in a significant bounce when it tests the 1,325 area, but realize the bounce could also come before the index actually reaches that level. As such, we have switched to a tight trailing stop to protect our large profit in the UltraShort Dow 30 ProShares (DXD). Looking at the daily chart of DXD below, notice it broke out above a clear area of horizontal price resistance yesterday:
Prior resistance of the DXD breakout level, around $56.45, should now act as the new support level on any pullback in DXD. Therefore, we've placed our updated trailing stop about 25 cents below the breakout level. As long as DXD stays above that level, we'll let the profits ride because it could go much higher if downward momentum in the market continues. However, a drop below the $56.45 breakout level gives us a sound technical reason to still secure a majority of our profit.
If you wish to learn about Morpheus Trading Group's ETF trade entries on the same day they occur, sign up for a free trial to The Wagner Daily or other MTG services by clicking here (limit one per household). Also, remember that all previously published issues of both The Wagner Daily and The Wagner Weekly are available in the MTG archives. If you are new to our services or wish to broaden your knowledge of ETF trading or our general trading style, we recommend you browse the archives because it is educational and free! Click here to visit the Wagner Daily archives or here to visit the Wagner Weekly archives.
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In this column, MTG presents you with a FREE, actual trade setup that we are stalking for entry at some point during the week. Note that, unlike the daily guidance that regular Stalk Sheet subscribers receive, this free Stalk of the Week does not take into account overall broad market conditions that can easily affect the trade over the next several days. This week's Stalk of the Week is:
Click to receive your free 1-month trial to The MTG Stalk Sheet so that you can receive an average of one to three trade ideas such as this one on a daily basis (limit one free trial per household). Subscribers are always provided with detailed entry, stop, and target prices for each trade, and intraday e-mail alerts are sent as needed.
Below is the weekly commentary that accompanied the most recent ETF Trend Tracker, e-mailed to subscribers last weekend. The Morpheus ETF Trend Tracker, a perfect supplement to the ETF Roundup guide, is a comprehensive table of Exchange Traded Funds (ETFs) designed for informed investors and longer-term traders who prefer to hold their ETF positions for a few weeks to several months at a time. Based exclusively on a weekly analysis of trendlines on the daily and weekly charts, the ETF Trend Tracker provides subscribers with a thorough snapshot of the primary trend direction of ETFs in every category from broad-based to industry sector to international. This information is e-mailed to subscribers weekly, in a user-friendly format that groups ETFs based on the direction of their primary trends.
Commentary:The Market Segment ETFs closed the week sharply lower across the board, but the small caps (IWM) and mid caps (MDY) retraced much less than the other broad-based indexes. Of the two, MDY seems to trade in a more orderly fashion than IWM, forming cleaner patterns. We also noticed the S&P 500 Growth (IVW) fell lower, but stayed just above its Reversal Stop (S2) and other near term support levels. Yielding to the pressure was the S&P 500 (SPY) breaking below support levels and entering the descending trend. The Dow 30 (DIA) also broke down sharply below key support.
There were several industry sectors that came under heavy pressure with the broad market last week. Take Regional Banks (IAT), for example. IAT broke down from its inability to post higher highs from the early May attempt, and then began falling back down to our Trigger. IAT broke through support levels and closed at the lows of the week. Aerospace (PPA) was another industry that looked particularly weak. Check out this week's updated ETF Trend Tracker report for ETFs that hit their Reversal Trigger (S2) levels. ETF additions to ascending and descending trends were made, which can be quickly spotted by looking for rows shaded in pink color. Gapping higher were the Commodities (DBC), Oil (USO), and Natural Gas (UNG).
The fixed-income (bond) ETFs were little changed and steady through the volatility in the equities market.
Several International ETFs also turned lower, and a handful of them landed in the "descending trend" list. ETFs already in the descending trend extended their route and continued to break below support levels. Watch for unusually high risk in India and China due to their volatile chart patterns as of late.
Alert of imminent reversal to the upside:Click to receive your free 1-month trial to the ETF Trend Tracker (limit one free trial per household), which will be e-mailed to you every week, along with intra-week updates on an as-needed basis.
