We're proud to announce that Deron Wagner, founder and head portfolio manager of Morpheus Trading Group, was recently interviewed about his style of ETF trading for leading financial newspaper Investor's Business Daily (IBD). The article was featured prominently on page A-10 of the August 19 issue. In case you missed it, IBD was kind enough to give us permission to republish the article on our website, which you can read by clicking here. In case your computer is not configured to read Adobe PDF format, click here to download the free Adobe reader.
Stocks moved lower for a second straight day yesterday (August 19), as several of the main stock market indexes broke below key support levels. Unlike the previous day, in which the broad market trended steadily lower throughout the entire session, most of yesterday's losses occurred in the morning. Thereafter, stocks oscillated in a choppy, sideways range throughout the rest of the day. The S&P 500 fell 0.9%, the Dow Jones Industrial Average 1.1%, and the Nasdaq Composite 1.4%. The small-cap Russell 2000 and S&P Midcap 400 indices were lower by 1.6% and 1.0% respectively. All the major indices closed in the bottom third of their intraday ranges, but that didn't mean much considering the relatively tight trading ranges of the afternoon.
Turnover rose across the board yesterday, causing both the S&P 500 and Nasdaq Composite to register a "distribution day" that was indicative of institutional selling. Total volume in the NYSE rose 5% above the previous day's level, while volume in the Nasdaq similarly ticked 4% higher. Considering that Monday's lackadaisical trading pace was the slowest in months, it was not surprising that volume increased a bit yesterday. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a margin of approximately 4 to 1.
While noting the relative strength of the broad retail sector last week, we specifically pointed out the bullish chart pattern of the S&P Consumer Staples SPDR Fund (XLP), which had broken out above major resistance of its June 2008 high. Although we felt XLP was one of the better looking ETFs in this uninspiring environment, we wanted to wait for a pullback to support before buying. I want to give you a "heads up" that that anticipated pullback is happening right now, creating a low-risk buy entry in XLP at the moment. Take a look at the weekly chart of XLP below:
Notice how XLP has retraced down to the vicinity of last week's breakout, as noted by the dashed horizontal line on the chart above. Remember that the most basic tenet of technical analysis states a prior area of resistance becomes the new support, after the resistance is broken. This means that the breakout above horizontal price resistance of the June 2008 highs should now act as key support on any pullback in XLP. As such, the current retracement presents a low-risk buy entry with a positive reward/risk ratio. Aside from the healthcare ETFs, many of which pulled back to support of their 20-day exponential moving averages yesterday, retail is one of the strongest looking sectors lately.
In last week's broad market commentary, we said we were "dipping a toe in the short side of the market." That proved to be a wise decision. Taking an updated look at the technical picture of the broad market, some significant events took place yesterday. The negative is that both the S&P 500 and Dow Jones Industrial Average sliced below support of their intermediate-term uptrend lines, which began with the lows of last month. The positive, however, is that both the leading Russell 2000 and Nasdaq Composite indexes pulled back to touch support of their 20-day exponential moving averages (EMAs). Below is a daily chart of the Nasdaq Composite. Notice how support of its 20-day EMA converges with support of its intermediate-term uptrend line from the July 2008 low:
Several days ago, in The Wagner Daily, we pointed out that the Nasdaq Composite had rallied into resistance of its weekly downtrend line, which was likely to trigger a pullback in the broad market. That's exactly what has happened over the past two days. However, the Nasdaq has now corrected down to support of both its 20-day EMA and intermediate-term uptrend line. This, of course, is bullish in the near-term. But wait, don't get too excited, the broad-based S&P 500 just complicated the picture by falling below support of its 20-day EMA and intermediate-term uptrend line yesterday. Take a look:
With the Nasdaq Composite and Russell 2000 (not illustrated) coming into key areas of short-term support, but the S&P 500 and Dow Jones Industrial Average (not illustrated) breaking down below their key short-term support levels, it's fair to say the main stock market indexes are now showing mixed signals and out of sync with one another. So, which signal will hold the most weight? Since we're talking about an uptrend, the index(es) that led the way higher over the past month should have the most bearing on the near-term direction of the broad market. Those indexes were the Nasdaq Composite and Russell 2000. With support of their 20-day EMAs below (and the intermediate-term uptrend for the Nasdaq Composite), there's a good chance these indexes will cause the market to show moderate strength in the coming days. Still, a break below yesterday's lows in any of the broad-based indexes, especially the Nasdaq and Russell 2000, could weigh heavily on the broad market.
After buying the rally off its 200-day MA last week, we closed our position in UltraShort Financials ProShares (SKF) yesterday, locking in a handsome gain of 19 points (16.5%). Although we still expect the banking and broker/dealer sectors to eventually test last month's lows, we are not interested in holding through a pullback in SKF if strength in the Nasdaq/Russell causes the sector to bounce in the short-term. Rather, we'll look for SKF to consolidate for a week or so, then plan to re-enter the position on any subsequent breakout above the range of the consolidation (as well as the 50-day MA). We secured a nice profit in SKF, but still have a bearish position on the broad market through UltraShort Dow 30 ProShares (DXD), which is now showing a healthy unrealized profit as well. Our long positions in iShares Healthcare (IYH) and iShares Nasdaq Biotech (IBB) also remain intact. IBB came into support of its 20-day EMA yesterday. IYH is still firmly above its 20-day EMA.
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.
 | Published by Bloomberg Press,
Deron Wagner's brand new book is now available! Learn how to profit from ETF trading in both up and down markets! |
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After seven long months of writing, followed by another eight months of production, my brand new ETF book has finally been published!
If you like my style of ETF trading and investing, but always wanted to know more about it, this book's definitely for you. Within the book, I detail my entire "top-down" ETF sector trading strategy, discuss entries and exit strategies, and even walk through twenty real-life examples of ETF trades I've taken over the years (ten long, ten short). The book is "officially" scheduled to arrive at your local bookstore today, August 20, but it's already available on Amazon.com, where you can buy it at a heavily discounted rate.
I'm quite confident you'll enjoy and learn a lot from the book, and I'm more than happy to personally address any questions you have upon reading it. Just shoot me an e-mail. By the way, if you enjoy the book (or even if you don't, ha ha), I sure would appreciate you posting an honest review on Amazon.com.
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.
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:Two more Market Segment ETFs rallied into the "ascending trend" list last week. This latest development will shift our trade bias more to the bullish side. Look for the S&P 500 (SPY) to trigger next. Leading the broad markets is the small cap index (IWM), which has gained 3% over the past week. Note, however, that IWM may see a pullback in the near-term as it tests resistance of its June 2008 high.
More industry sector ETFs triggered to the ascending trend as well. In just a few short weeks, the majority of the industry ETFs are already becoming well established on their trends. One of the leaders is Biotech (BBH), which has gained 22% since early June. Broadband (BDH) has stealthily rallied to a 10% gain since triggering to the ascending trend. Several defensive ETFs continued to decline as traders rotated out of those ETFs. Leading the way lower were Oil Services (OIH), Energy (XLE), and Utilities (XLU). Additionally, in the Specialty sector, Gold (GLD), Silver (SLV), Euro Currency (FXE), Oil (USO), and Natural Gas (UNG) all extended their descending trends. SLV has declined more than 26%, and Natural Gas (UNG) has dropped 35% since July. Both are showing very impressive gains if you initiated a short position upon their entry into the "descending trend" list.
Fixed-income (bond) ETFs rallied modestly, and the Corporate Bonds (LQD) is setting up to reverse to the upside soon.
The International markets remained noticably weaker than our domestic markets. Weakness was observed across virtually all International ETFs. Brazil leads the breakdown, dropping 24% since mid-June. Russia is next, staging a collapse of 23% since late June. The international ETFs in the ascending trend are performing poorly, and will need to stabilize at support levels.
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.
Yesterday, August 19, Deron Wagner discussed his new book, Trading ETFs: Gaining An Edge With Technical Analysis, in a radio interview with well-known financial columnist Chuck Jaffe. A free archive is available at yourmoneyradio.com for the next several days only. Click here to visit the archive and listen to the interview.
Recently, 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.