Stocks opened slightly lower yesterday morning, quickly stabilized, then traded in a choppy, sideways range throughout the day. The major indices eventually closed with mixed results and near the flat line. The S&P 500 slipped 0.1%, the Dow Jones Industrial Average gained 0.1%, and the Nasdaq Composite advanced 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 0.1% and 0.5% respectively. Most of the main stock market indexes settled near the middle of their intraday ranges, but the Nasdaq Composite finished in the upper third of its range.
Total volume in the NYSE receded 5%, while volume in the Nasdaq similarly declined 3% below the previous day's level. Given the uneventful price action of the broad market, the lower turnover was of little significance. Like the closing prices, market internals were mixed. Advancing volume in the Nasdaq beat declining volume by nearly 2 to 1. The NYSE adv/dec volume ratio was fractionally negative.
Yesterday, many of the commodity ETFs, as well as the relatively strong basic materials ETFs, took a break from their recent gains. We made a judgment call to scratch our position in the iShares Basic Materials (IYM) because it is deliberating at pivotal resistance of its breakout. Two exceptions to yesterday's pullback were the StreetTracks Gold Trust (GLD) and iShares Silver Trust (SLV), both of which zoomed to fresh highs. Though it's discussed much less frequently than gold, spot silver has actually been showing substantial relative strength to gold. To illustrate this, take a look at the percentage change overlay chart of the popular gold ETF (GLD) versus silver (SLV):
For those of you who attended one of my recent seminars on relative strength trading of ETFs, the chart above is a good example of the type of divergent pattern we like to see when comparing various ETFs within the same family. Taking a closer look at the hourly chart above, notice that GLD and SLV began showing divergence on February 22. That day, GLD was basically flat, but SLV gained more than 1%. If using overlay charts to compare sectors on a daily basis, one could have acted on that bullish divergence by buying SLV the next morning. The relative strength in SLV obviously intensified, as SLV outperformed GLD by approximately 5% just three days later. When precious metals begin pulling back to support of their 10 or 20-day moving averages on the daily charts, one might consider SLV over GLD on the next entry.
Taking an updated look on the international front, keep an eye on the iShares Xinhua China 25 (FXI). After correcting from its amazing run over the past four months, it appears FXI may be forming a substantial bottom. Take a look at its daily chart below:
From mid-January through mid-February, FXI kept trying to go lower, but continually found support at the $136 to $137 area. Since then, it has begun to climb off its lows. Yesterday, it closed just shy of both its 200-day MA and four-month downtrend line. Notice how the downtrend line also converges with resistance of the 50-day MA. There's obviously three significant levels of resistance FXI must contend with right now, but a confirmed rally above its 50-day MA would be quite bullish. We'll be monitoring the price action of FXI in the coming days, with the intention of buying a clean breakout above the triple convergence of resistance. As always, be careful not to "jump the gun" ahead of the actual breakout. Doing so can be quite dangerous, especially in a bear market.
While on the subject of international ETFs, it's interesting to note that iShares Brazil (EWZ) has recovered all the way to a new all-time high. Its breakout is shown on the daily chart below:
We'd prefer to wait for a bit of consolidation or slight pullback before buying EWZ, especially with the S&P and Dow at resistance of their 50-day MAs. Nevertheless, keep EWZ on your radar. It is perhaps showing the most relative strength of any international ETF right now.
As for the domestic stock markets, all eyes are on whether or not the S&P and Dow will overcome resistance of their pivotal 50-day moving averages. So far, the initial test of resistance has been pretty lame, but it doesn't mean we won't at least see a "stop hunt" with a rush of momentum above the 50-day MAs. Conversely, the recent rally off the lows has made the risk/reward of new short entries more attractive. We'll consider selling short a broad-based ETF or two if the major indices begin breaking below yesterday's lows. Until then, we remain neutral on the short-term direction of the broad market. Regardless of short-term strength along the way, don't forget we're still in a confirmed bear market. Stay on guard to prevent potentially getting led like a lamb to the slaughter.
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:
There is no "official" Stalk of the Week this week. We are monitoring coal stocks for continuation breakouts. Biotech stocks are coming alive with bullish chart patterns in BMRN, PRGO, ILMN, and IMCL. We are looking to establish positions on both sides of the market wherever we can find relative strength and weakness. If any new trades are placed, we promptly send an email alert to regular subscribers of The MTG Stalk Sheet.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:Indecision reigned supreme in the holiday-shortened week, whipping the bulls and bears in both directions from one day to the next. In these choppy situations, it is most beneficial to default to the longer-term chart patterns and trends, which typically prevail over short-term chop. Recent alternating days of wide-ranging price levels makes it difficult to quantify risk. The stock market has also been very sensitive to economic news events. Broad market price action in the final thirty minutes of trading last Friday, fueled by talk of a bailout plan for financial re-insurer AMBAC, is a good example of this. Nevertheless, excessive volume expansion was not observed during that sudden bullish reversal. This either means the rally did not have enough time to be fully played out, or mutual, hedge, and pension funds simply were not overly interested in the media-driven rally. Most of our Market Segment ETF stop levels were unchanged. However, several are consolidating and testing their Reversal Triggers.
Commodity-related ETFs continued to build on their recent gains last week, ignoring the indecision in the broad market. The Commodities Index (DBC) posted new highs and is accelerating higher. Gold (GLD) and Silver (SLV) are holding at their highs as well. Natural Gas (UNG) shot up to new highs last Friday. In a similar area, oil-related ETFs and the Energy SPDR (XLE) also set new “swing highs” within the context of their current uptrends. A few particularly weak ETFs fell below their prior “swing lows.” Software (SWH) is one of them.
The fixed-income (bond) ETFs rallied slightly, but the bond market closed prior to the equity market last Friday. Therefore, the last minute rally in equities may not be reflected in bond prices. For now, stops are unchanged in the fixed-income arena.
Three International ETFs rallied into the “ascending trend” list last week. Brazil (EWZ) made the most impressive move. Not surprisingly, Brazil was previously been one of the leading indexes in the Latin American market. EWZ will soon be testing several important resistance levels to see if the bulls will overrun the sellers in the near future. Noticeably weak is Hong Kong (EWH), which posted a new low. India (INP) fell below the prior “swing low ,”and settled the week with the lowest close of its trend.
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.