All That Volume and No Place to Go: (SMH)


Stocks closed mixed on quadruple witching Friday as volume was brisk. Four of the five major indices finished higher with the Nasdaq, S&P 500 and the Dow Jones Industrial Average all posting modest 0.6% gains. The S&P MidCap 400 rose a slim 0.2% while the small-cap Russell 2000 was the day’s laggard as it registered a 0.1% loss for the session.

Market internals ended the session mixed. As might be expected on an end of quarter options expiration day volume spiked across the board. Turnover surged on the Nasdaq by 36.0% and on the NYSE by almost 60.0%. However, advancing volume lost out to declining volume on the Nasdaq by a ratio of 1.2 to 1 while it bested declining volume on the NYSE by the same margin. After five days up in the market we saw considerable churning as stocks were unable to move higher despite the big volume. This is generally not a good sign for bulls as churning is often equated with distribution.

Via an intraday alert we entered a long position in the ProShares UltraShort MSCI Emerging Markets ETF (EEV) on Friday. We liked the trade because EEV had pulled back and began to stabilize at support of its 20-day EMA. Further, over the past five sessions as the broad market has rallied, EEV has been one of the few inverse ETFs to hold support of its 20-day EMA. This exhibition of relative strength factored significantly in our decision to enter the trade. Trade details are available to our subscribing members in the open positions segment of the newsletter.

The Semiconductor HOLDRs ETF (SMH) formed a reversal candle on Friday and appears likely to find resistance at the current price. Notice the “churn” in SMH near the 50-day MA. As volume has spiked significantly SMH has moved only minimally higher. This type of price and volume action often appears when institutions are in distribution mode. A move below yesterday’s low of $30.78 could present a shorting opportunity in this ETF.

As of this writing the S&P and Nasdaq futures are down significantly and most of the over-seas markets are down significantly. If this pattern holds we expect to see a substantial gap down at the open. This type of price behavior is quite common in down-trending markets and makes trading a bit more difficult since setups can occur with the formation of a single candle and big gap downs nullify may potential short entries. Consequently, we are always on the lookout for signs of churning and the formation of reversal candles as they provide early signals that the market may be running out of steam…

Today’s Watchlist:

There are no new official setups for today. We will send an Intraday Alert if any new trades are made.

Daily Performance Report:

Below is an overview of all open positions, as well as a performance report on all positions that were closed only since the previous day’s newsletter. Net P/L figures are based on the $50,000 Wagner Daily model account size. Changes to open positions since the previous report are listed in red text below. Please review the Wagner Daily Subscriber Guide for important, automatic rules on trigger and stop prices

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  • Per intraday alert, bought EEV on a pullback to the 20-day EMA.
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      Edited by Deron Wagner,
      MTG Founder and
      Head Trader