The Wagner Weekly
February 10, 2003

MTG Sector Snapshot - A new weekly column by Chris Chang

Morpheus Trading Group is pleased to welcome a new member of the MTG team, Christopher Chang. Beginning this week, and every week hereafter, Chris will be writing a new column in The Wagner Weekly entitled "MTG Sector Snapshot."

The purpose of this new weekly column is to continually keep you updated with regard to the current mid-term technical trend in the major indices, as well as the sector ETFs. By knowing the current trend of the market and its individual sectors, you will be able to recognize which side of the market is most profitable and least risky to be on. The weekly trend analysis Chris will be presenting is based on simple trendlines, but with a unique dynamic interpretation that alerts you to trend changes every week. Just like support/resistance levels and moving averages, the proper use of trendlines will help determine the success of your trades. ETFs are a tradeable proxy of the sector index, just as trading SMH (Semiconductor HOLDRS) enables us to capitalize on the trend of the SOX (Semiconductor) Index. This column is not designed to provide you with specific daytrading ideas, but it will give you "big picture" of general market conditions, which is helpful to any trader regardless of trading time horizon.

MTG has worked hard to bring you a concise snapshot and technical commentary on the market and various sectors each week. Each weekly column will begin with a short commentary on the broad market trend, charts of each of the three broad-based index ETFs (SPY, DIA, and QQQ), and, the most interesting part, a complete "Sector Trend Trigger" list that provides you with the exact date and price at which the current trend began. The sectors we follow are divided into four categories: broad-based, industry-specific, bonds (fixed income), and international. The current blend in ETF categories offer us a condition to satisfy almost any prescription for a diversified portfolio that is ideal for traders and long-term investors alike. Without further ado, MTG is proud to present the first of many "MTG Sector Snapshots," presented by Christopher Chang:

Broad market trend commentary:

The three broadbased ETFs (DIA, QQQ, SPY) are moving well on the descending trend (the thicker blue descending trendline) since the last break of support and first anchor in late Jan.  (red down arrow).  QQQ was the last broadbased sector to be identified on a descending trend on 1/31/03.  The latest ascending trend was not established since the retracement did not develop into a swing low formation.  In fact, the retracement was so severe that it took out our first anchor point of the ascending trendline (Last week in Dec 2002).  This nice reversal formation in Jan. is much like a large scale "bull trap."  In essence, we have lots of supply here from those who "just want to breakeven" from their over zealous buying in light of the bullish seasonality of January.  Supply is the horizontal band of choppiness the last few months, or you can call it an area of resistance.  The choppiness is implied by the dense concentration of trend change arrows on the charts.   The current descending trendline is a valid one since the reversal in Jan. developed into a swing high.  This swing high allowed us to place the second anchor (indicated by an ellipse) to draw our trendline.  The current trendline was redrawn since the latest ascending trend was not established with a second anchor.   Thusly, you see two descending trendlines sharing the same first anchor (first week in Dec 2002).  The chart formation has developed into a classical lower high and lower low definition of a descending trend.  As the trend develops, we will evaluate in more detail about the trendline, develop tactics to dynamically adjust the trendline, and identify when to trade on the "right " side of the market every time.   Today, we've shown the descending trendline was redrawn when the preceding trend could not be established with a second anchor.

Before viewing the charts below, we recommend you consult the glossary of terms by clicking here. Doing so will provide you with a clear explanation of how to interpret the chart annotations below.








Sector Notes:

A move to the ascending trend in the 20yr+ bond ETF (TLT) was conforming to our bearish bias in the market.  Two more sectors moved to the descending list, software (IGV/SWH) and internet (HHH).   International ETF keeps migrating to the descending list with Hong Kong as the last mover. 

CLICK HERE to download this week's "Sector Trend Trigger" list. You will need Adobe Acrobat Reader to view the file, which is available as a free download by clicking here.

Closing Thoughts:

When charting some thinly traded ETFs intraday, watch out for the validity of your moving averages.   Sometimes an ETF may not trade for over 5 mins (or longer), then your 20 period moving average is not the latest twenty, 5-min bars of the last 100 mins.  Typically, the charting algorithm will pull the last 20 bars and plot the average, regardless of the time it took to generate those bars.  (ok, candlesticks, but bars is easier to type).  As you increase the plot interval, you'll encounter less of a problem.

Christopher Chang is the Founder and President of the Mighty Investment Fund, Westlake Village, CA. He has worked with Witenberg Investment Companies, Inc., Beverly Hills office, as the director of Asian Investments and is presently Vice President of Orchid Investments, Inc. located in Newbury Park, CA. He publishes weekly market messages to his clients and has been trading ETFs since their inception. He has developed ETF trend analysis techniques and has a unique insight on market activity that is a perfect fit with the ETF trading methodology of Morpheus Trading Group.

His education background is also unique, as he is a graduate from UCLA and received a Masters Degree in Environmental Science from the Florida Institute of Technology. He worked as a Senior Chemist and Project Manager for major environmental consulting firms. He has since been an instructor at both colleges and presents seminars on investment risk management.

Weekly Reality Report

If you have been actively trading the markets, I am sure you will agree with me that last week was one of the most challenging weeks to make a profit in many years. The market is stuck in a phase in which buyers have no interest in stepping in, but sellers are not very serious about dumping shares either. The result is a slow bleed lower on light volume that looks like a steady downtrend on the daily charts, but has been very challenging to trade on an intraday or overnight basis.

MTG's primary goal over the past several weeks has been preservation of capital rather than trying to realize large profits. If you focus on "living to fight another day," short-term challenging periods in the markets do not really matter because you will always be around to realize solid profits when conditions eventually improve. As a result of our focus on capital preservation, we did not make many trades last week and kept losses tight as you will see below.

Below is a summary of the performance of each MTG trade that was closed during the week of February 3 - 7, 2003. Any open positions are not reported until the week they are closed.

Trades from The Wagner Daily:

Trades from the ETF Real-Time Room:

Click here for a detailed explanation of how Morpheus Trading Group calculates and reports its trading results.

Click here to view a detailed cumulative summary of every MTG trade since the end of October, 2002 (updated weekly).

Odds and Ends

Remember that free trials to all MTG services are available by clicking here (limit one per household).

I'm excited to announce the national publication of some new educational trading articles I recently wrote for two magazines. The first article, entitled "Short-term Sector Trading With ETFs," can be found on page 52 of the March issue of Active Trader magazine. The second article, entitled "Navigating Choppy Sideways Markets," begins on page 11 of the February issue of SFO (Stock Futures and Options) magazine. Both issues are now on sale at your favorite newsstand.

Time is running out to sign up for my ETF workshop at the International Online Trading Expo. in New York City on February 27, 2003. Click here for more details.

As always, thanks for spreading the word about Morpheus Trading Group and all the benefits of ETF trading!

Deron M. Wagner
Founder and Editor

Morpheus Trading Group
www.morpheustrading.com
The Leader in ETF Trading!

DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Weekly ( hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may buy, sell or have a position in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.
Copyright © 2002 - Morpheus Trading, LLC
All Rights Reserved
Charts from RealTick (www.realtick.com)