Last week in The Wagner Daily, we discussed the benefits of trading or investing in ETFs with little or no correlation to the direction of the U.S. stock market. The DB Commodity Index (DBC) is a good example of an ETF that is ignoring the recent bearishness in the broad equities markets. Per intraday e-mail alert to regular subscribers, we bought DBC last Friday when it broke out to a new all-time high on strong volume. Because it's comprised of a variety of commodities futures contracts, there is no concern of the breakout failing just because of weakness in the U.S. stock market. The breakout to a new high from a tight base of consolidation is shown on the daily chart below:
In addition to buying DBC last Friday, we also entered the U.S. Natural Gas Fund (UNG) after it broke out above resistance of its weekly downtrend line. The bullish move in this ETF, which roughly mirrors the price of natural gas, is shown on the weekly chart below:
Of the various types of ETF families, commodities are clearly showing the most bullish patterns right now. Still, another family of ETFs with little correlation to the U.S. stock market is the CurrencyShares, which are designed to mirror the exchange rates of various global currencies compared to the U.S. dollar. With the dollar showing such weakness in recent years, many of these ETFs have already realized strong upward moves and may be ready for near to intermediate-term pullbacks. Regardless, other currencies are only now showing bullish chart patterns. One such example is the CurrencyShares Japanese Yen (FXY):
Over the past three weeks, FXY has been consolidating in a tight range, near its high. With the 20-day exponential moving average rising up to provide support from below, one could soon expect to see an upward thrust to a new all-time high. However, the CurrencyShares Euro Trust (FXE) is conversely correcting from its recent strength. Though one could still classify its recent pattern as bullish consolidation on the weekly chart, it's equally possible to make the argument that FXE has formed a "triple top" formation on its daily chart. It also gapped below support of its 50-day moving average last week, further augmenting the possibility of a steeper price correction. The daily chart of FXE is shown below:
Regardless of whether the dollar continues to weaken or rebounds in the near future, the CurrencyShares family of ETFs provide a host of trading opportunities with little correlation to the U.S. equities markets. For a complete list of the available CurrencyShares ETFs, download the free Morpheus ETF Roundup and see the "specialty ETFs" section. Note that another completely updated version of the ETF Roundup is already in the works.
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:
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 the most recent ETF Trend Tracker, e-mailed to subscribers last weekend. 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 continued to rally off the short-term lows established January 23, and the major indices finished the week at their highs of the session. However, extremely whippy, indecisive action plagued the stock market several days last week. Among downtrending ETFs, a few MTG Stops (S1) were hit along the way. More stops and reversals may begin to trigger next week, locking in gains on the short side, so be sure to keep your stops updated using the latest ETF Trend Tracker report.
All the Market Segment ETFs rallied well, but are now approaching significant resistance and areas of price congestion from last November and December. Showing relative strength, the small caps (IWM) may be the first Market Segment ETF to land back in the "ascending trend" list. Nevertheless, IWM is characterized as having a choppy chart pattern because it triggered into the "descending trend" list only about one month ago.
The Regional Banks ETF (IAT) continues to perform well and is leading the Industry sectors higher. New to the "ascending trend" is the Dow Transports (IYT). Internets (HHH) gapped up Friday, and we are looking for a reversal into the ascending trend within the next couple of days. Again, several more MTG Stops and Reversal Stops/Long triggers will be hit if this rally continues into next week. The only sectors that felt saw negative rotation were Oil (USO), Natural Gas (UNG), and Gold (GLD). The Euro Currency (FXE) is forming the third top of a "triple top" formation and may provide an ideal short entry if a stop is maintained above the top of the range.
Fixed-income (bond) ETFs remained steady and traded sideways for the week.
Several International sectors are also setting up for their Reversal triggers. Mexico (EWW) is the first one to cross over to the "ascending trend" list. Keep a look out for explosive moves in India (INP) and China (FXI). Hong Kong (EWH) and Singapore (EWS) are ones that looked a little flat in a bullish week.
Despite many ETFs poised to trigger to the "ascending trend" list, we suggest avoiding aggressive entries on the long side of the market. Overall intermediate and long-term trends remain "down," so stocks could resume their primary downtrends at any time. Generally, risk/reward still favors the short side of the market, so one might consider initiating new mid-trend short entries on ETFs that are rallying into major areas of resistance. Remember to use our annotated charts to assist in your decision making.
Alert of imminent reversal to the upside: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.
This weekend's Live ETF Trading Seminar in Fort Lauderdale was a success. Attendees learned many topics related to ETF trading, in a fun, relaxed setting. If you missed us in Florida, there's still time to catch MTG Founder and Portfolio Manager, Deron Wagner, at the upcoming New York Traders Expo on February 18. Registration and details for this event can be found at newyorktradersexpo.com. We look forward to meeting you there!