Stocks kicked off the week in uneventful fashion, as the major indices opened slightly higher, drifted lower throughout the morning, then chopped around in a sideways range throughout the rest of the day. Like the previous session, the main stock market indexes finished with mixed results. Both the S&P 500 and Nasdaq Composite lost 0.1%. The Dow Jones Industrial Average declined 0.3%. The small-cap Russell 2000 and S&P Midcap 400 indices showed relative strength by scoring identical gains of 0.7%. The S&P 500, Dow Industrials, and Nasdaq Composite all settled in the bottom third of their intraday ranges.
Turnover receded to its lightest levels in weeks. Total volume in the NYSE declined 30%, while volume in the Nasdaq limped in 18% below the previous day's level. In both exchanges, trading dropped well below 50-day average levels. However, the lower turnover was positive because it was basically just a consolidation day. Higher volume with little changed prices would have pointed to "churning," a bearish event that occurs when stocks rally, then trade sideways on increasing volume. In both the NYSE and Nasdaq, advancing volume was on par with declining volume.
On July 15, we bought the UltraShort Oil and Gas ProShares (DUG), which moves in the opposite direction of the energy sector. However, we scratched the trade intraday due to bullish reversal that was brewing in the broad market. Even though the oil sector was weak that day, we were concerned that energy issues would get a solid boost from general strength in the broad market regardless. We were wrong. The oil-related ETFs continued to fall apart throughout the day, propelling the inversely correlated DUG higher. Oil moved lower over the next two days, but stabilized and began to bounce higher on July 18. Now out of sync with the broad market, the oil sector continued bouncing yesterday as well. This caused DUG to pull back to support of its uptrend line off the July 2 low, as well as its 10-day moving average. This is shown on the daily chart of DUG below:
Now that DUG has nearly retraced back to the level we bought it at last week, the convergence of 10-day MA and trendline support makes it a low-risk buy entry at its current level (remember that buying DUG is basically the same as selling short the oil and gas sector). Nevertheless, despite the short-term trade setup, realize we are not suggesting oil has definitively formed a top. The correction in oil shares simply has not been substantial enough to make such an assessment. Rather, DUG is merely presenting itself as a short-term setup that astute traders may profit from. If buying DUG here, a relatively tight stop can be placed just below the 20-day exponential moving average (1.5 points below yesterday's close). If DUG rallies back to test its July 17 high, selling into strength of the quick move would net you a gain of about 4 points. A risk of 1.5 points with a potential reward of 4 points means the reward/risk ratio on the setup is better than 5 to 2 (4 points / 1.5 points). For all trades, whether short or long-term, we look for reward/risk ratios of at least 2 to 1.
As expected, Biotech HOLDR (BBH) gapped sharply higher on yesterday's open. News of the Roche acquisition offer of Genentech (DNA) caused BBH to open 6.4% higher. Per real-time Intraday Trade Alert to Wagner Daily subscribers, we sold into strength of that move a few minutes later, netting a gain of more than 19 points (11.2%) on the trade! Admittedly, a bit of luck contributed to that massive winner. However, we originally bought BBH due to relative strength in the biotech sector, which led to a breakout in BBH. The Genentech news was just icing on the cake.
We're smack in the middle of quarterly earnings season. That means lots of surprises and opening gaps from day to day. After yesterday's close, Apple (AAPL) trumpeted their latest report card. Though they beat earnings estimates, they lowered their forward-looking expectations. This did not please Wall Street. In the after-hours market, AAPL was last seen trading approximately 10% below yesterday's closing price of $166.29. Regardless of whether or not you have a position in Apple, this is noteworthy. Google, Microsoft, and Apple all had disappointing news within the past three days. When market leading stocks such as Apple start falling apart, it acts as an anchor on the entire broad market (especially the tech-heavy Nasdaq). We're not saying last week's rally attempt off the lows is already dead, but we have not yet seen any indication that it was anything more than a very short-term, counter-trend bounce. Either way, we welcome the direction of the stock market's next move because we trade what we see, not what we 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.
In last week's Wagner Weekly, we presented subscribers with a trade setup to buy Genentech (DNA). It traded through its trigger price that same day, then went on to become a rather large winning trade! This week, we will follow-up to show you exactly how the trade played out. Below is a daily chart detailing the setup:
Let's see how DNA subsequently played out after our entry:
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.
Last month, Morpheus Trading Group's Founder and Portfolio Manager, Deron Wagner, presented a one-hour workshop on his strategy of relative strength ETF trading at the Los Angeles Traders Expo. If you were unable to attend, but really wanted to, you're in luck! Wagner's entire one-hour presentation was captured live on video, and is now available for your viewing pleasure as a webcast. The best part is that viewing it is completely free!
To view the complimentary webcast, simply click here, then click on the link titled "Relative Strength Sector Trading With ETFs." Note that you first need to register with MoneyShow.com in order to view the video, but it is free to do so. Just look for the link on top of the page if not already a registered member.
If you enjoy the webcast and would like to catch Wagner at his next live workshop, mark your calendar for the upcoming Las Vegas Traders Expo, scheduled to be held from November 19 - 22, 2008. In the meantime, be sure to sign up for a free 1-month trial to his daily ETF newsletter, The Wagner Daily, or any other service of Morpheus Trading Group, if you have not already had one within the past year.
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:After dipping to new lows, the Market Segment ETFs firmed up to rally into the end of the week. The counter-trend bounce caused numerous ETFs to run into the upper channel of their descending trends, thereby challenging the MTG stops (S1). The S1 is a stop that is placed closer to the current price, and is used to exit positions mid-trend. For those who entered the trade at the Trigger price, it is used as a gauge to consider taking profits and/or decrease position size. The market rarely puts together more than a three-day consecutive trend in either direction, so be wary of counter-trend rallies.
A strong recovery in the financial sector led the relative strength among industries, and the mood temporary changed to bullish last week. Bull markets are typically confirmed by a strong financial sector. Check out the action in the Regional Banks (IAT). It has gained over 30% in 3 days, rising like a phoenix from its low. Sectors that were previously showing relative strength are now showing weakness, with U.S. Oil (USO) being one of them. Take a look at this week's ETF Trend Tracker report for detailed information on ETF entries, stops, and performance. Regarding performance, the "% Change" column is a snapshot of how the ETF is doing since the entry's Trigger date and price. This return is REAL for your open positions. Profit targets vary among our subscribers. Some have a set mark of, for example, a 5% gain over a 3-month period, or a profit of 3 times the amount risked, or they simply follow the exit points based on the MTG and Reversal stops listed in the report. Whatever profit target you prefer, you must pre-determine which one it is, PRIOR to your entry. Otherwise, you will experience a roller coaster return that will be hard on the psyche. Nearly every week, you have an opportunity to exit at a gain, as evidenced by the "% Change" column in the ETF Trend Tracker report. It is always a battle between greed and fear, as well as deciding whether or not it is the right time to exit. Our new, forthcoming version of this report will attempt to address these powerful emotions that can be detrimental to your bottom line. Watch for a beta version, coming soon!
Funds rotated out of the fixed-income (bond) ETFs last week, and took prices below our Trigger levels. The Corporate Bonds (LQD) continued its retreat, and hit new lows.
The International ETFs are beginning to rally alongside of the U.S. markets, but this is still just a counter-trend rally. We spotted some compelling price patterns, and have adjusted stops to reflect our interpretation. Remember to check out annotated charts of each ETF by simply clicking on any ETF ticker symbol in each week's report. Hong Kong (EWH) gapped lower mid-week, then rallied back to its prior area of consolidation. The whole time during its descent, it stayed below the trend channel, and just recently breached the trend channel resistance. We see a defined risk level on which we can base a managed entry. Subscribers can use the Reversal Stop (S2) of EWH as the long entry setup. At MTG, we are anticipating moves in the market by allowing subscribers to set up trades prior to them triggering.
Our goal is for subscribers to become successful traders and investors, and using the ETF Trend Tracker is the dynamic way to make consistent money in any market for the long run. Traders and investors alike need consultation the most when markets are difficult. Everyone's a genius when the markets are up, right? Take ownership of your portfolio and schedule a consultation session with one of the MTG professionals. MTG is offering a Bear Market special discounted consultation rate of $120 per half hour, through July 31, 2008. Just call or e-mail us to set up an appointment. Learn how to approach trades during any market condition, and gain insights into using the ETF Trend Tracker report for long term growth. Learn mid-trend entry strategies, controlling risk, portfolio management, and trade execution -- all personalized to you. It could make the difference from being "lucky" to becoming a consistent market investor, profiting trade after trade. Only one right trade idea from the consultation will make up for your fees, but you can use the same strategy to do it over and over again!
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.