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Potential Buy Entry In (GDXJ)

 April 21, 2011 09:39 AM

Stocks were up sharply on Wednesday on expanding volume. All five major indices closed significantly higher. The small-cap Russell 2000 and the Nasdaq surged by 2.6% and 2.1% respectively. The S&P MidCap 400 almost eclipsed the 2% mark as it posted an impressive 1.8% gain on the day. The Dow Jones Industrial Average tacked on 1.5% while closing at a new 52 week high. The S&P 500 ended the session up 1.4%.

Market internals were positive across the board on Wednesday. Advancing volume was significantly higher than declining volume on both the NYSE and the Nasdaq. The advancing volume to declining volume ratio ended the day at 3.2 to 1 on the NYSE and 5.4 to 1 on the Nasdaq. Turnover spiked by 25% on the Nasdaq and 13% on the NYSE. Wednesday's strong internals point clearly at significant institutional involvement in yesterday's rally.

[Related -Mining Shares Look Weak — Is it Time to Buy?]

Given the massive gap formed yesterday, setups that meet our technical criteria a virtually nonexistent. Therefore, we will be spending the majority of our time waiting for setups to form. We are not inclined to chase the market just because it is going up (or down). A winning trade is composed of two parts: 1.The setup meets the trading rules and 2. The risk-reward ratio is in our favor. Just because a potential trade is moving in the direction expected does not mean the trade should be entered.

The Market Vectors Junior Gold Miner ETF (GDXJ) has been setting a sequence of higher lows and most recently, has made two significant undercuts of the 20-day EMA. This type of shakeout price action often precedes a breakout move as it washes out the weak hands and attracts shorting activity. An ideal long entry in GDXJ would be a pullback near $41.00, as this would fill the gap and bring GDXJ into a key support level. Alternatively, GDXJ could also offer a buy signal if it were to consolidate for several days between $40.75 and $41.75 and then rally above yesterday's high of $42.12. We will be carefully monitoring this ETF for a potential long entry.

[Related -SPDR Gold Trust (ETF) (GLD): The Boldest Gold Prediction Of 2013]

The Market Vectors Coal ETF (KOL) has undercut its 50-day MA two of the past three days. Yesterday, this ETF reversed sharply off this key moving average. Several days to several weeks of consolidation in the seven day trading range, followed by a volume fueled move back above the April 15th high of $49.60 may provide a buy entry signal for KOL.

Yesterday's action was a clear follow through day for the market. The move was impressive and broad based with even lagging sectors posting gains. Based on Wednesday's move, we would not be surprised to see all of the major indices test the 52 week highs.

NOTE:Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.

Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world. Wagner is currently working on this third book, scheduled for publication in early 2008.For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com


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