Volume returned to the stock market yesterday (September 2), but the tug-of-war between the bulls and bears remained. Trading got off to an enthusiastic start, as all the major indices gapped open more than 1% higher, but the sellers quickly took control. Thirty minutes into the trading session, stocks began heading south, and continued doing so throughout the entire day. By the closing bell, each of the main stock market indexes were seeing red. The Nasdaq Composite fell 0.8%, the S&P 500 0.4%, and the Dow Jones Industrial Average 0.2%. The small-cap Russell 2000 only slipped 0.1%, but the S&P Midcap 400 shed 1.0%. Like the previous day, all the major indices settled near their intraday lows.
As anticipated, turnover jumped substantially. Total volume in the NYSE surged 50% above the previous day's level, while volume in the Nasdaq rose 37%. Though it was good to see the return of institutional trading activity, it was negative that the first day of strong volume was accompanied by persistent selling throughout the day. The broad-based losses on higher volume caused both the S&P 500 and Nasdaq Composite to register a bearish "distribution day," indicative of selling by mutual funds, hedge funds, and other institutional players. In the Nasdaq, declining volume exceeded advancing volume by a ratio of 2 to 1. The NYSE adv/dec volume ratio managed to remain marginally positive.
Like many other sectors, biotechs got off to a strong start yesterday morning, but eventually fizzled out alongside of the broad market. Nevertheless, we have not yet declared the end of relative strength in the healthcare arena. In fact, if the stock market manages to hold up, several of the biotech ETFs are presenting low-risk buying opportunities. One such ETF is SPDR S&P Biotech (XBI), which corrected to touch support of its 50-day MA for the first time since its current rally began in early July of this year. If XBI manages to rally above yesterday's high, it will correspond to a move above its 20-day exponential moving average (EMA), and present a valid buying point as well:
Yesterday, the U.S. dollar spiked to close near its highest level of the year, putting additional pressure on commodities and their associated ETFs. However, the weekly chart of CurrencyShares Euro Trust (FXE), an ETF proxy for the direction of the euro vs. the U.S. dollar, is now showing substantial price support at current levels. This is marked by the dashed horizontal line on the chart below:
By pointing out this major area of support, we are not advocating a buy entry into FXE just yet. Rather, we're giving you an early heads-up of an ETF that may be forming a bottom from its intermediate-term correction. At the least, just keep FXE on your radar and wait for some sort of bullish reversal pattern to develop on the short-term charts. Moreover, if strength in the U.S. dollar starts to subside, it may have a positive effect on the price of numerous commodity ETFs, which have largely been moving in the opposite direction of the U.S. dollar.
The Nasdaq Composite, which we analyzed in yesterday's Wagner Daily, again tried, but failed, to move above its 200-day moving average (MA). It was the third failed attempt in the past seven days. The amazing power of the 200-day MA "brick wall" support/resistance is also discussed in my new book, Trading ETFs: Gaining An Edge With Technical Analysis. The numerous failures to overcome the 200-day MA is shown on the daily chart below:
Not only did the Nasdaq reverse after touching its 200-day MA, it also closed way down at the bottom of its recent sideways trading range. Notice that a solid break below yesterday's low would correlate to a break of the 50-day MA. If that happens, the intermediate-term trend of the Nasdaq will join the long-term trend by shifting from neutral to bearish. Both the S&P 500 and Dow Jones Industrial Average also closed just above their 50-day MAs, but remain near the middle of their recent sideways ranges.
Yesterday's price action in the broad market was simply par for the course. Over the past week, we've been reiterating the danger of putting much faith into the direction of the stock market until the major indices clearly show their hand. Specifically, we have been waiting for the main stock market indexes to close above their clearly-defined levels of resistance, or below their pivotal levels of support that we've illustrated in recent days. Since neither of those scenarios happened yesterday, we preserved capital by avoiding getting sucked into new ETF trade entries. Patience to sit on the sidelines and do nothing has been paying huge dividends lately. Remember the best traders are out of the markets more than they're in the markets, which allows them to keep their previously hard-earned profits in more challenging market conditions. Don't be a hero by trying to catch every market gyration right now, as each one has merely been occurring within the context of a choppy, sloppy sideways range.
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.
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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 a sincere 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:
As per the commentary above, we are essentially in SOH (sitting on hands) mode at present. As such, there is no new Stalk of the Week this week. We don't believe in forcing trades that are less than ideal.
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 Russell 2000 small-cap (IWM) spiked lower and triggered its reversal stop, sending IWM into the "descending trend" list. IWM then quickly rallied to close the week at the middle of its near-term range. This range is bordered by the "double top" high and the trigger low. The Market Segments are now equally populated between the descending and ascending trending ETFs, which indicates to us a neutral bias. Expect choppy trading sessions, as recently experienced from day to day, to be the norm for a while. Range-bound activity is typical of low-volume trading environments, which hopefully will improve after the Labor Day holiday.
Assessment of the S&P 500 (SPY) weekly and monthly charts indicates sideways boundaries of support and resistance, but on an overall descending trend pattern. SPY formed a near perfect "double top" on its monthly chart (3/2000 and 10/2007). Weekly patterns in the Nasdaq 100 (QQQQ) show a triangular wedge, and a decreasing boundary range. This actually looks bullish on a monthly chart, as it shows consolidation near the highs of an ascending trend. The Dow 30 (DIA) does not have a "double top" pattern like the SPY, but its monthly pattern just formed a lower "swing high," and it is now on a descending trend. Perhaps the mixed long-term patterns are contributing to the lack of conviction to establish a clearly defined short-term trend.
Most Industries grinded lower in another choppy trading week. However, we spotted some sectors that held up and stood out among the rest. One of them was the Regional Banks (IAT), which bounced from its trigger support and formed a higher "swing low" just above a prior low. IAT is trading within a 6-7 week range, and we have moved the Reversal Stop to virtually our entry level (near breakeven). Financials (XLF) reacted similarly, but XLF is on a descending trend and recent patterns indicate choppiness.
In the Specialty sector, the Euro Currency (FXE) is stabilizing near the lows, the Commodities (DBC) lost interest to move higher, Gold (GLD) and Silver (SLV) consolidated, along with Oil (USO) and Natural Gas (UNG).
The Corporate Bonds (LQD) traded high enough to trigger the Reversal Stop (S2), but we are near the end of the month and a price adjustment will be made for the monthly dividend distribution. All fixed-income bond ETFs that we follow are on the "ascending trend" list.
The International sector stabilized a little but some ETFs extended their descending trends. Weakness continued in Korea (EWY), Mexico (EWW), India (INP), and Russia (RSX). Future long position entries will most likely come in the International sector. The ETF Trend Tracker report helps those who do not place short positions by steering them away, at least, from placing long positions in the International sector. This saves our subscribers trading capital in choppy conditions
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.
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.
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.