Broad Market Analysis - Silver is better than gold!
The major indices wrapped up the month of August with a relatively flat session, but higher volume hinted at a bit of selling into strength. Both the S&P 500 and Dow Jones Industrial Average edged less than 0.1% lower, while the Nasdaq Composite snapped its five-day winning streak by losing 0.1%. The small-cap Russell 2000 was unchanged, but the S&P Midcap 400 woke up and rallied 0.4%. Stocks attempted to break out in the final ninety minutes of trading, but the attempt failed, sending the broad market back down to finish where it spent the first half of the day. The S&P, Nasdaq, and Dow all finished in the bottom third of their intraday ranges, though the Nasdaq showed the most relative weakness.
Total volume in the both the NYSE and Nasdaq was 4% higher than the previous day's levels. Although the major indices finished nearly unchanged, it was actually bearish that turnover increased. When consolidating at the top of a range, you want to see decreasing volume because it indicates the bears are not stepping in while the buyers are taking a rest. However, if near the high of a range, increasing volume occurs without corresponding gains often points to traders selling into the strength of a rally attempt. This is known as "churning" and should serve as a warning sign that a short-term top may be forming. We liken "churning" to a sports car that attempts to accelerate too fast. Rather than shooting down the highway, it will merely spin its wheels in place. Conversely, the opposite volume pattern is effective at predicting short-term bottoms. If, at the low of a range, you see increasing volume without further price losses, it indicates traders are buying into weakness and accumulating shares of stock. Remember that volume is the one technical indicator that never lies and is the most accurate leading technical indicator at your disposal.
Shortly after yesterday's open, we sent an intraday e-mail alert to Wagner Daily subscribers, informing them that the iShares Silver Trust (SLV) had broken out above of a range of bullish consolidation and that it looked good for a potential purchase. It subsequently gained two more points throughout the remainder of the session and looks good for further upside in the coming days to weeks. As you might recall, we initially bought SLV when it first broke out above its 50-day moving average on August 1. SLV subsequently hit our trailing stop price on August 11, netting us a gain of more than 2.5 points on the trade. Because we suspected that it may have been a "shakeout," we continued monitoring the price action of SLV in the weeks that followed. It has acted well since then, consolidating in a relatively tight range near its highs. That bullish consolidation has built a solid base of support, which is the reason we told subscribers about yesterday morning's breakout above the range. The daily chart of SLV illustrates the clear breakout above the range:
Since we've been discussing the bullish pattern in silver, you may be wondering why we did not buy gold instead. The answer is simply that gold has been showing much more relative weakness than silver. The StreetTRACKS Gold Trust (GLD), which mirrors the price of the spot gold commodity, technically remains in an intermediate-term downtrend that has been in place since the middle of May. While SLV was consolidating in a narrow, sideways range throughout the month of August, GLD was drifting lower. Obviously, we always want to buy the sector ETFs that exhibit the most relative strength, NOT those that are lagging behind. Nevertheless, GLD gained 1.4% yesterday and closed just above its 50-day moving average. It also finished right at resistance of its multi-month downtrend line:
If you compare the charts of GLD and SLV, you will should easily notice the divergence and relative strength of SLV over GLD. However, that being said, it appears that GLD will now attempt to break out above its downtrend line as well. If it clears yesterday's high, it would not be a bad idea to take a shot at buying shares of GLD, but the corresponding gains in SLV are likely to outpace those of GLD. Notice also that GLD briefly broke out above its downtrend line in early August, but failed to hold the breakout. One must therefore be on alert for a possible repeat of the same scenario.
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Deron Wagner, the Founder of Morpheus Trading Group and Head Trader of the Morpheus Capital hedge fund, and daily contributor to TradingMarkets.com, will be sharing his extensive knowledge on how he uses exchange traded funds for trading various market sectors. In this seminar, Wagner will be expanding on techniques discussed each day in his Wagner Daily newsletter and the ETF Trend Tracker, as well as presenting completely updated information from his video, Sector Trading Strategies, and book, The Long-Term Day Trader.
The same workshop will be conducted in various cities around the country at the following locations and dates. Specific details of each location will be e-mailed upon your registration and seat reservation:
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You will learn how to. . .
If you really want to trade ETFs, but don't know where to start, be sure to attend the workshop at a city near you. Expand your trading opportunities well beyond the commonplace ETFs such as the S&P 500 SPDR (SPY) and the Nasdaq 100 (QQQQ) and you will reap the rewards. If you missed Wagner's recent seminar at the Ft. Lauderdale International Traders Expo. (pictured above), now is your chance to catch this special workshop again at a nominal cost of only $95! Please note that seating is limited and advance registration is required. Attendance available on a first-come, first-served basis.
In this column, MTG presents you with a FREE, actual trade setup that we are stalking for entry at some point during the week. Note that, unlike the daily guidance that regular Stalk Sheet subscribers receive, this free Stalk of the Week does not take into account overall broad market conditions that can easily affect the trade over the next several days. This week's setup is:
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Below is the weekly commentary that accompanied this week's updated ETF Trend Tracker that was e-mailed to subscribers. The Morpheus ETF Trend Tracker, a perfect supplement to the ETF Roundup guide, is a comprehensive table of Exchange Traded Funds (ETFs) designed for informed investors and longer-term traders who prefer to hold their ETF positions for a few weeks to several months at a time. Based exclusively on a weekly analysis of trendlines on the daily and weekly charts, the ETF Trend Tracker provides subscribers with a thorough snapshot of the primary trend direction of ETFs in every category from broad-based to industry sector to international. This information is e-mailed to subscribers weekly, in a user-friendly format that groups ETFs based on the direction of their primary trends.
Commentary:The markets moved mildly lower for the week, as volume remained well below average levels. Several MTG Stops (S1) were moved closer to current price levels in order to lock in gains and reduce risk.
Consumer Staples (XLP) continue to perform well, again rising steadily higher last week.
Defensive ETFs, such as Pharmaceuticals (PPH), are near new highs and may break out this week.
The remaining fixed income ETF that was on the "descending trend" list, Corporate Bonds (LQD), moved to the "ascending trend" with the others. We mentioned that the bond market was a good long position earlier this month. Check the latest ETF Trend Tracker report for the entry dates that triggered on the bond ETFs.
Internationally, Brazil (EWZ) came crashing down to the "descending trend" list last week. Other areas of the world were also weaker in general. Boasting the largest gains since their entry triggers are China (FXI) and United Kingdom (EWU), both showing gains over 19%. The weakest return is Taiwan (EWT), trading about 4% off our entry in the "ascending trend" list.
Click to receive your free 1-month trial to the ETF Trend Tracker (limit one free trial per household), which will be e-mailed to you every week, along with intra-week updates on an as-needed basis.