Continued high volatility kept traders on their toes yesterday, as the major indices raced back to recover all of Monday's sharp losses, and then some. Bullish resilience helped the Nasdaq Composite to gain 2.5%, the Dow Jones Industrial Average 2.4%, and the S&P 500 2.3%. Small cap stocks maintained their relative strength, enabling the Russell 2000 to zoom 2.7% higher. The S&P Midcap 400 advanced 2.1%. Opposite of the previous day, each of the main stock market indexes closed at its intraday high.
Turnover swelled yesterday, allowing the stock market to maintain the positive price to volume relationship it has settled into in recent weeks. Total volume in the NYSE rose 16% above the previous day's level, while volume in the Nasdaq increased by 18%. The large gains on higher volume enabled both the S&P 500 and Nasdaq Composite to score another "accumulation day," the third such day of institutional buying within the past week. While it's still too early to determine whether or not we've seen the ultimate bottom of the current bear market, the broad market's recent price to volume relationship has clearly been positive. As such, we have no choice but to have a bullish bias on the intermediate-term. Yesterday's accumulation also helps tip the scales to the bullish side for the short-term as well.
In yesterday's Wagner Daily, we illustrated how the small-cap Russell 2000 had pulled back to support of both its 10 and 20-day moving averages. It was therefore not surprising that the bounce off key support enabled the Russell 2000, with textbook precision, to lead yesterday's broad-based rally. The Russell has showed the most relative strength of the main stock market indexes since the mid-July lows, and it once again outperformed the percentage gains of the rest of the major indices in yesterday's session. Looking at the daily chart below, notice how the Russell has moved back above its 50-day MA. It is the only broad-based stock market index that has done so:
As per our pre-market plan detailed to subscribers, we bought the Ultra Russell 2000 ProShares (UWM) just a few minutes after yesterday's open, when UWM moved back above its 20-period exponential moving average on the 15-minute chart. Because the pullback already put UWM at such a great area of support, just like the underlying index itself, we didn't require a lot of confirmation in order to initiate a new long entry yesterday. UWM cruised much higher after our buy entry, and is already showing an unrealized gain of 2 points. We now expect the Russell 2000 (and UWM) to rally above its July high in the short-term. When it does, we'll assess price action and determine whether to sell into strength, or let the winner ride and simply trail a protective stop.
Because of the market's resilience to recover all of the previous day's losses, and on higher volume, yesterday was a busy day. Solar stocks have started to come alive again, prompting us to also buy Claymore Global Solar Energy (TAN) yesterday. Leading stocks within the solar energy sector have started breaking out above recent bases of consolidation, which caused TAN to break out above its intermediate-term downtrend line on the daily chart. This occurred after TAN also formed a "double bottom" area of support. The daily chart of TAN is shown below:
In the July 28 issue of The Wagner Daily, we discussed the recent strength of the U.S. dollar, and specifically its relation to the price of commodity ETFs. We suggested the CurrencyShares Euro Trust (FXE) was about to break below major support of its 50-day MA. We pointed out that such a break of major support in FXE would cause PowerShares U.S. Dollar Index (UUP) to conversely break out above its recent consolidation. That's exactly what happened yesterday, which triggered our long entry into UUP. The UUP breakout is shown on the chart below:
Finally, after recently netting a large gain on the Biotech HOLDR (BBH), we are now monitoring several of the biotech ETFs for the next ideal entry point to jump back into the sector. We like the pattern in S&P Biotech SPDR (XBI) the best. Presently, the ETF is in a tight, sideways range, holding above its 10-day MA. XBI is also trading at an all-time high, meaning there is a complete lack of overhead supply. We intend to buy XBI on a breakout above its recent consolidation, or a pullback to its 20-day EMA (presently at 62.83), whichever occurs first. The consolidation of XBI is shown on the daily chart below:
Despite the high volatility of the past several days, our overall biases remain the same, albeit slightly more bullish now. The long-term trends remain firmly "down." The intermediate-term trends favor the long side, as we still don't expect a test of the July lows yet. The short-term view still gives us mixed signals, as seen on the daily charts. However, if long anything, small caps are where it's at. The small-cap market segment is clearly leading the way higher. It should continue to do so as the major indices attempt to rally back to test their July highs.
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 trade 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.
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, click here, then click on the link, on the right side of the page, 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:Volatility was prevalent in both directions last week. Small caps (IWM) continued to show major relative strength, and rallied to its trigger level. The mid caps (MDY) rallied to the trend channel resistance. Click on either ticker symbol in this week's report to view annotated charts with these trendlines. Several of the major stock market indices formed "swing highs," but it will take several more weeks to develop into a tradable pattern. The best scenario now is for the market segments to consolidate and form a base at its current levels. After establishing some stability and trading in a range, a structured move higher would get us out of the bear market pattern.
Currently, the Dow 30 (DIA), S&P 500 value (IVE), and the Dow dividend (DVY) ETFs are setting up to reverse. Check out the updated ETF Trend Tracker report reversal levels in the S2 column. The reversal level is annotated as "S1,2" symbol, which is short for both the S1 and S2 stop. The Reversal Stop price is identified in a box next to this symbol. Our subscribers may use this reversal stop price to set up "Buy Stops" for example, and wait for them to trigger. Unfortunately, the recent sharp rally will create a large risk when triggered, so use caution and proper position sizing for these trades.
The volatility also triggered several industry sectors into the "ascending trend" list. MTG sees this wave of Industries as significant, and a few of these will survive this move higher and standout among the rest. Already making a big move last week was Biotechs (BBH). After a large gap higher, BBH continued its pace and ended the week-long session at its highs. Using the ETF Trend Tracker report allowed subscribers to enter this ETF over a month ago. We've also been discussing the bullishness of BBH in our commentary for several weeks.
In addition to the Biotech HOLDR, Broadband (BDH) gapped up big last week. The annotation on our charts may look a little strange, but it conveys the key information necessary. The dotted green line is the trigger level, and the green oval is the trigger price that will be recorded to track performance. From the gap, obviously, no one was able to execute a trade at the trigger level. The trigger price recorded is the opening price of the gap day.
Energy-related ETFs continue to grind lower, still correcting after the huge gains realized from the rally in crude oil (USO). In the "descending trend" list, USO is yielding over a 9% return since mid-July. Natural Gas (UNG) has gained about three times as much on the descending trend, and reports a 27.5% return on those trading natural gas on the short side.
The fixed-income (bond) funds attempted a rally, but ended the week nearly unchanged. The Corporate Bonds (LQD) made up the most ground after posting new lows two weeks ago.
Our subscribers are in excellent positions in the International ETFs. Just from early May 2008, several ETFs are yielding over a 10% return from short positions. Currently, two Asian ETFs have triggered into the "ascending trend," and are ready for those stalking this sector for long positions. India (INP) rallied back nicely, and also reminded us of the volatility that is in store when trading this ticker. Russia (RSX) cascaded lower to close the week.
Our goal for subscribers is 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 who profits from 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.