The major indices managed to fight back after early losses on Friday. It was a typical "whippy" trading day as is often associated with options expiration. The market gapped down and sold off until 12:00 pm and rallied the remainder of the day. The Nasdaq Composite and Small-Cap Russell 2000 both finished flat on the day. The S&P Mid-Cap 400 was slightly down giving back 0.1%. The S&P 500 and the Dow Jones Industrial Average exhibited more weakness closing down 0.4% and 0.6% respectively.
Total volume in the NYSE jumped by 7% while Nasdaq volume was 9% lighter than the previous day's levels. Based on volume & price action we would consider this to be a mild accumulation day based on the afternoon reversal. Although NYSE declining volume surpassed advancing volume by 2.5 to 1 this was well below the worst levels of the day recorded at 9 to 1. The Nasdaq exhibited the same trend. Early in the day declining volume outpaced advancing volume by 4.5 to 1 but ended the day at parity of 1 to 1.
As anticipated the semiconductor sector remains weak. Consequently and as expected the inversely correlated UltraShort Semiconductor ProShares (SSG) performed well. On light volume it tested the 200-day moving average and managed to close just 4 cents below Thursday's closing price.
On a significant burst of volume the PowerShares DB US Dollar Index Bullish Fund (UUP) rallied strongly off of the 20-day EMA. This followed four days of light volume consolidation. Since the August 6 low UUP has broken its downtrend by setting a higher low and a higher high. Again, it is important to note that the current advance has been on very strong volume.
The iPath S&P 500 VIX Short-Term Futures (VXX) is setting up for a potential buy entry. The VXX recently set a higher low and looks to be a buy entry over the prior swing high of 24.10. The setup would be confirmed by a move above the "dirty" downtrend line and the 50-day moving average (see chart below). The anticipated target would be a rally into the 200-day MA.
Open ETF positions:
Long - TLT, DBA, UUP Short (including inversely correlated "short ETFs") - SSG
Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.
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