Morpheus Tradin...'s  Instablog

For the second time in as many days, market internals were mixed. Trade tumbled on the Nasdaq by 17.6% but on the NYSE by a modest 1.6%. Declining volume topped advancing volume by a ratio of 4.2 to 1 on the NYSE and 3.3 to 1 on the Nasdaq. The light volume suggests that institutions are not actively involved in Friday's selloff.

Despite the poor performance put in by equities on Friday, the light volume was the saving grace of the session. Because of the absence of high volume selling, the market did not realize a distribution day. We've continually stated lately that as long as the market avoids distribution days and we continue to see buying into weakness, our bullish stance on the market will remain intact. Friday left us no reason to sway from our bullish bias.

The iShares Russell 2000 Index Trust (IWM) lost support of its 10-day MA on Friday and it now appears that this ETF may rejoin its 20-day EMA for the first time since January 5th of this year. Notice that support of the uptrend line coincides with this key moving average. A pullback, followed by consolidation at this level could provide a buying opportunity in IWM. We are monitoring IWM for a possible long entry.

Recently, we exited the iShares Dow Jones US Telecom Sector ETF (IYZ) for a solid profit. Since exiting the trade, IYZ has been consolidating for the past six sessions above its last breakout of $21.70. A retest of this level and/or an undercut of the 10-day/20-day moving averages could present a buying opportunity in this ETF.

On Friday, IYT undercut its 20-day EMA and formed a bullish reversal candle. If Friday's low holds, IYT is likely prepping for another move higher. DVY has been showing excellent relative strength over the past two sessions, as it has been consolidating above the gap formed on February 2, 2012. DVY is also holding support of its 10-day MA. The market continues to hold up well but we are still may have to withstand a few more days of selling pressure prior to a potential move higher in the market. For the moment, we will likely have to exercise patience, since it may take some time for new setups to develop.

Deron Wagner is a professional hedge fund manager who founded Morpheus Trading Group, a swing trader education firm, in 2002. He is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis. His new book, Advanced Technical Analysis of ETFs, will be released in August 2012. Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is also a frequent guest speaker at various trading events around the world, and can be reached by sending e-mail to: deron@morpheustrading.com.

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