The major indices followed through on the previous day's downward momentum yesterday, leading to another round of losses that caused the Dow to close at its lowest level since March 17 of this year. The S&P 500 fell 1.0%, as both the Dow Jones Industrial Average and Nasdaq Composite lost 1.1%. The small-cap Russell 2000 and S&P Midcap 400 registered matching losses of 0.8%. The main stock market indexes finished in the bottom third of their intraday ranges, but it was an erratic, indecisive session, not a steadily downtrending day.
Total volume in the NYSE surged 13% higher than the previous day's level, while volume in the Nasdaq similarly swelled 12%. The stock market's losses on significantly higher volume caused both the S&P 500 and Nasdaq Composite to suffer a "distribution day" that was indicative of institutional selling. When the major indices bounced off their recent lows from June 12 - 16, we cautioned that the gains could easily become undone because the rally was occurring on light volume. That's exactly what has happened over the past two days. Declining volume in the NYSE exceeded advancing volume by approximately 3 to 1. The Nasdaq adv/dec volume ratio was negative by more than 4 to 1.
In the June 9 issue of The Wagner Daily, we discussed the precarious technical position of the Dow Jones Industrial Average. Specifically, we illustrated how the index had fallen below its 61.8% Fibonacci retracement from its March 2008 low to May 2008 high. Because of that occurrence, we said the Dow was likely to fall all the way down to test its March 2008 low. As such, it's not surprising that the Dow broke down to new recent lows yesterday. With its closing price just above the 12,000 level, the Dow is now just one big down day away from testing key support of its March 2008 closing low of 11,740.
Although the Dow is in danger of tumbling to a new 52-week low, the good news is the index is now sitting on support of its multi-year uptrend line from the March 2003 low. The dashed blue line on the monthly chart below illustrates support of the long-term uptrend line, while the red descending line marks the downtrend the new primary downtrend that began last October:
Because of the long-term uptrend line shown above, one should be cautious on the short side of the market, at least in the near-term. However, the Dow has not yet shown us any bullish confirmation to begin buying at current levels. Trying to catch this falling knife is a risky proposition, as panic selling could rapidly drive the Dow sharply lower if its March 2008 low is broken. We recently realized a large gain from our position in the UltraShort Dow 30 ProShares (DXD), but the current risk/reward ratio for being short the Dow may no longer be very positive -- unless the index breaks down to a new 52-week low.
Two days ago, we discussed the likelihood of the iShares Silver Trust (SLV) breaking out above its intermediate-term downtrend line and resuming its long-term uptrend. SLV dropped slightly the following day, but rallied back to its June 16 high yesterday. This means SLV is now forced to test resistance of its downtrend line going into today's session. This is shown on the daily chart of SLV below:
If it manages to close above its downtrend line today, upside momentum could carry SLV much higher in the near-term. Support of the 20 and 50-day moving averages just below should provide the necessary bounce for the breakout above the tight range. We're already long SLV from our June 16 entry, and our stop is just below the June 17 low. We want to be out quickly if SLV breaks down below that day's low, as a failed breakout above the downtrend line could cause it to fall hard. Note that StreetTRACKS Gold Trust (GLD) has a similar chart pattern, but SLV has been showing a bit more relative strength.
Thanks to relative strength in the Russian market, our long position in Market Vectors Russia (RSX) is starting to look pretty good. Over the past two days, the S&P 500 has lost 1.7%, but RSX has gained 1.1% during the same period. When an ETF is showing so much relative strength that it manages to gain while the broad market sell off, what do you think happens when the overall stock market eventually bounces? The ETF typically surges higher, outperforming the percentage gains of most other ETFs in the process. RSX is presently showing an unrealized gain of just under one point since our June 13 entry, but it should zoom higher when the U.S. stock market finds support again. International ETFs can be ideal investment vehicles when the U.S. market is going down, as some international stock markets have a low correlation to the direction of our domestic markets.
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.
Live ETF Trading Seminar with Deron Wagner June 22, 2008 - Los Angeles, California June 28, 2008 - Houston, Texas  Learn how to shift your ETF trading into high gear. . . in both up and down markets! For all active traders and investors. June 22, 2008 - 1:00 pm to 6:00 pm (coincides with LA Traders Expo, where Wagner is also speaking) Los Angeles, California Click here for more details and to reserve your seat. June 28, 2008 - 10:30 am to 4:00 pm Houston, Texas Click here for more details and to reserve your seat. Cost: $595 DESCRIPTION
YOU WILL LEARN HOW TO:
Not only will you walk away armed with the knowledge to succeed in ETF trading, but we're quite confident the investment in yourself will pay for itself many times over, within a very short time. Nevertheless, you need to act fast because seating is limited and advance registration is required. Attendance available on a first-come, first-served basis. |
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 broad market continued trending lower throughout most of last week, but a late-day rally last Friday enabled the Market Segments to recoup most of the week's losses. The majority of Market Segment ETFs are now on the "descending trend" list, which biases any new market entries to the downside. If stocks rally further on Monday, "swing low" areas of support will form on the daily charts.
More Industries fell into the "descending trend" list last week. Look for the rows shaded in pink color on this week's ETF Trend Tracker to quickly find new entries to the list. The generally bearish tone last week caused several MTG Stops (S1) to be hit, and some have been revised as well. Pharmaceuticals (PPH) were particularly weak, breaking below a number of swing low support levels and testing new lows from March. Regional Banks (IAT) remains weak and regularly posts new lows week after week. Recovering well is Broadband (BDH); it is testing new highs after coming close to the S2 level midweek. The Euro Currency (FXE) also broke a key level of support, indicating relative strength with the U.S. Dollar. US Oil (USO) and Natural Gas (UNG) remain at lofty levels, as the Commodity Index (DBC). Precious metals (GLD, SLV) trade near the lows of their recent ranges, but seem to be finding support here.
The Fixed-income (bond) ETFs fell lower for the week, and extended their respective trend directions. Corporate Bonds (LQD) accelerated its decline after breaking below near-term support levels.
Our weak domestic market was felt globally, as several more International ETFs landed in the "descending trend" list. Korea (EWY) leads the ETFs on the downside, falling over 6% since its trigger in early May. However, EWY is still above support of its March 2008 low. Only one ETF has already broken below the March support levels; that would be India (INP).
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.
