Broad Market Analysis - Don't forget the international ETFs
The broad market traded in a narrow, sideways range yesterday, as stocks digested their recent gains. The major indices finished near the flat line as well. Both the S&P 500 and Dow Jones Industrial Average edged 0.1% lower, but the Nasdaq Composite was higher by the same percentage. Not surprisingly, small and mid-cap stocks showed a bit of relative weakness. The Russell 2000 lost 0.4% and the S&P Midcap 400 fell 0.7%. While both indices usually outpace the S&P, Dow, and Nasdaq on the "up" days, they also tend to retrace the most when the stock market pauses or corrects. Despite a relatively unchanged day in the broad market, many leading stocks continued breaking out and held on to their recent gains. This is a positive sign, as most broad market rally attempts in recent months lacked the leadership of strong individual stocks.
As we often see on consolidation days, turnover dropped off in both exchanges. Total volume in the NYSE declined by 12%, while volume in the Nasdaq was 3% lighter than the previous day's level. It was positive that lower volume matched the flat market action because it indicates the bears did not sell into strength while the bulls took a break. Had volume been higher without a corresponding gain in price, it would have pointed to bearish "churning," but that was not the case. In the NYSE, advancing volume marginally exceeded declining volume. The opposite was true in the Nasdaq.
The recent strength in the U.S. markets has generated buying interest in a handful of the international markets as well. As such, now is a good time to review the chart patterns of the plethora of international ETFs found on the free Morpheus ETF Roundup. The iShares Xinhua China 25 (FXI) is arguably the international ETF with the most relative strength. This ETF, which tracks mainland China's equivalent of the Dow Jones Industrial Average, has been oscillating in the $76 to $80 range for the past several months, but appears it may soon break out. Looking at the chart below, notice how the 50-day moving average has risen up to provide support at the $78 area. If FXI rallies above its September 5 high, it will break the one-month downtrend. Beyond that, its all-time high is not much further above:
Another international ETF that has been acting well is the iShares Belgium Index (EWK). For the past five weeks, it has been consolidating near its all-time high in a narrow range. As the weekly chart below illustrates, EWK is only 13 cents away from breaking out above its prior high that was set in May of this year. Notice also how the 50-week moving average (the teal colored line) has perfectly acted as support on several occasions since July of 2005:
Most likely, the consolidation of the past five weeks is creating a solid base for EWK to break out to a new high. When it does, you might consider buying the breakout and simply placing your stop just below the pivotal breakout level. Doing so would provide you with a very positive risk/reward ratio because stocks and ETFs trading at new record highs lack any type of overhead supply that acts as resistance.
The Nasdaq 100 Index Tracking Stock (QQQQ), which often acts as a barometer of the broad market's health, finally rallied up to test resistance of its 200-day moving average. It was the first time in four months that QQQQ has touched its 200-day MA. The Nasdaq 100 still remains much further below its 52-week high than the S&P or Dow, but it has been catching up quickly:
Many industry sectors and leading stocks have been acting quite well over the past week, so it's not likely the 200-day MA on QQQQ will trigger a sharp reversal to the downside. However, it does provide a good excuse for the bulls to take a break. We therefore expect to see a bit of sideways consolidation and perhaps a modest price retracement in the short-term. As long as the broad market correction is not too steep, it will provide a good chance to scoop up shares of strong ETFs and stocks that pullback or move into support of their primary uptrend lines. Overall, more sectors are now in uptrends than downtrends, especially the tech-related issues, but there are still a few pockets of weakness such as Utilities, Energy, and Gold/Silver.
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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:
Each workshop will run from 1:00 pm - 3:30 pm on the following dates. Click on the location of your choice to register and reserve your seat:
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:
Last week's Stalk of the Week, ININ long, did not trigger, but remains on the Stalk Sheet watchlist.
Click to receive your free 1-month trial to The MTG Stalk Sheet so that you can receive an average of one to three trade ideas such as this one on a daily basis (limit one free trial per household). Subscribers are always provided with detailed entry, stop, and target prices for each trade, and intraday e-mail alerts are sent as needed.
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:One important sector reversed its trend last week - the S&P Select Financial SPDR (XLF). It is now on the "ascending trend" list, although it was choppy in the latter half of last week. Consider waiting another week for confirmation that it will remain in the "ascending trend" list before taking a position.
Dropping to the "descending trend" list was the S&P Select Energy SPDR (XLE), which has also been discussed extensively in The Wagner Daily over the past two weeks. The Crude Oil ETF (USO) has been weak as well. It looks like many of the ETFs in the "descending trend" list are defensive type ETFs such as Energy, Transportation, and Healthcare. The exception is the Internet sector (HHH). Be sure to update your stops from the latest ETF Trend Tracker report.
The bond market was kind of choppy last week. However, we noticed new swing lows forming, which helps us determine our risk while in a long position.
Internationally, Europe (FEZ) and Mexico (EWW) headed to the "descending trend" list. Previously, Mexico and Brazil (EWZ) were our biggest gainers on the upside. Now, they are out of favor. The topping formation in United Kingdom (EWU) is worrisome, but we are locking in healthy gains, about 17.7% from the last MTG Stop execution.
Biotech (BBH) gapped down below the rising wedge and is trading in the $176.00 area. Oil Services (OIH) is near new lows. Along for the descent are Basic Materials (XLB), US Oil (USO), and Energy (XLE).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.