Broad Market Analysis - Stalking the CurrencyShares Euro ETF
The following commentary appeared in the December 15 issue of The Wagner Daily. Although both FXE and GDX moved lower in Friday's session, the technical commentary is still relevant and both ETFs are still being tracked for potential entry over the December 15 highs.
In the December 14 issue of The Wagner Daily, we explained how the Semiconductor Index ($SOX) was at a critical "make it or break it" level of its 50 and 200-day moving average convergence. The bulls immediately scooped up shares of semiconductor stocks on yesterday's open, enabling the $SOX to close 1.9% higher. If not for the strength in the $SOX, yesterday's broad-based gains would have been difficult to achieve. The $SOX held support of its 50 and 200-day moving averages, but now it is back in "no man's land," stuck in its previous one-month range of choppy and directionless price action.
In addition to the $SOX, the Oil Service Index ($OSX) was a strong performer yesterday. The 1.3% gain in the $OSX enabled the Oil Service HOLDR (OIH) to convincingly break out above the high of its multi-week consolidation that we pointed out yesterday. If you bought OIH on a breakout above its December 8 high of 148.47, you are already sitting on a gain of more than 1.5 points as of the close. As always, the prior resistance at the 148.50 area should now act as support on any pullback. Therefore, you might consider trailing your stop to just below the prior high in order to protect against an immediate failed breakout.
In the November 21 issue of The Wagner Daily, we initially pointed out the bullish setup in the CurrencyShares Euro Trust (FXE). It broke out sharply the following day, closing at a new all-time high, then trended steadily higher through December 1. Unfortunately, much of the gain from the FXE breakout was the result of overnight opening gaps as opposed to intraday trends. We planned to buy the initial breakout on November 22, but we passed it by because the sharp opening gap negatively skewed our risk/reward ratio on the trade. Since peaking on December 1, we have been patiently stalking FXE, waiting for a decent price correction that would provide a second chance to buy it. We believe that time may be coming soon. Take a look at the daily chart of FXE:
As you can see, FXE dropped down to support of its 20-day moving average yesterday. In strongly trending stocks and ETFs, a retracement down to the 20-day MA often marks the low of a correction before the equity heads back up to its high. However, it is important to wait for confirmation of support before stepping up to the plate. In this case, the "safest" entry point is when FXE trades above the previous day's high. If that occurs today, we could buy over yesterday's high, but we will continue to wait patiently if FXE fails to move above yesterday's high.
The Market Vectors Gold Miners (GDX) is another ETF that is setting up for a low-risk entry on the long side. Unlike the StreetTRACKS Gold Trust (GLD), which mirrors the price of the spot gold commodity, GDX is tied to the price movement of a basket of gold mining stocks. In this latest rally, the mining stocks have shown more relative strength than the commodity itself, so we think GDX is a better bet than GLD if considering gold. On the chart below, notice how GDX has been trending steadily higher since the beginning of October and has corrected down to and bounced off support of its 20-day MA. Again, waiting for an entry over yesterday's high is ideal because it would help to confirm that a short-term bottom has been formed:
Despite having flashed several hints of a possible top over the past week, we were not shocked that the S&P 500 broke out to a new six-year high yesterday. On a basic technical level, its consolidation at the high has been tight and narrow over the past week and a half, so the odds favored an eventual breakout above the range. With a lack of overhead supply from prior highs, it never takes a lot of buying pressure for an index trading at a 52-week high to move further upwards. How long it holds above that range is anybody's guess, but at least it moved out of the range. The market clearly remains resilient, but the only thing that concerns us is the continued relative weakness in the Nasdaq 100 and the Russell 2000. If those indexes catch up to the S&P by moving to new highs, we'll feel much more comfortable on the long side of the market, but the range-bound $SOX is no good. As always, remember to trade what you see, not what you think!
If you wish to learn about Morpheus Trading Group's ETF trade entries on the same day they occur, sign up for a free trial to The Wagner Daily or other MTG services by clicking here (limit one per household). Also, remember that all previously published issues of both The Wagner Daily and The Wagner Weekly are available in the MTG archives. If you are new to our services or wish to broaden your knowledge of ETF trading or our general trading style, we recommend you browse the archives because it is educational and free! Click here to visit the Wagner Daily archives or here to visit the Wagner Weekly archives.
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, PAAS long, did not yet trigger.
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:The large caps performed well last week and several of the major indices posted new highs. Lagging behind were the small caps, mid caps, and NASDAQ in general. The techs and transportation were out of favor last week, which caused Broadband (BDH) and the Dow Transportation (IYT) to reverse into the "descending trend" list. Financials (XLF) and Regional Banks (RKH) performed well, giving the recent bullishness some credibility. Oil Services (OIH) is posting new highs on its current trend, but the US Oil Fund (USO) is relatively stagnant.
Fixed-income (bond) ETFs grinded lower as money rotated into equities. Internationally, Australia (EWA) was higher, along with other Asian ETFs. However, noticeably weaker was Malaysia (EWM), which was on fire for a couple of months. Its price is nearing our MTG Stop and we suggest a more higher share weighting on the S1 stop level. China (FXI) continues to lead the way higher, cresting over $100/share. Not to be left behind were the European contingency. Germany (EWG) continues to be a remarkably steady climber, as well as United Kingdom (EWU) and Europe (FEZ) in general.
Alert of imminent reversal to the upside:
NoneClick 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.