Stocks got off to a scary start yesterday morning (September 11), as several of the major indices dipped below their prior closing lows from July, but an impressive bullish reversal day enabled the broad market to finish significantly higher. The S&P 500 and Nasdaq Composite started the day with matching losses of 1.7%, but the bulls bought into weakness for a change, causing the indices to rally 3% off their intraday lows to close higher by 1.4% and 1.3% respectively. The blue-chip Dow Jones Industrial Average fared best with its 1.5% gain, but small and mid-caps lagged behind. The Russell 2000 gained just 0.3%, as the S&P Midcap 400 advanced 0.5%. All the main stock market indexes closed at their best levels of the day.
Total volume in the NYSE ticked 3% higher, while volume in the Nasdaq edged 1% above the previous day's level. Though turnover was only marginally greater, both the S&P 500 and Nasdaq Composite technically registered bullish "accumulation days." The intraday price action that enabled the major indices to reverse early losses to substantial gains confirmed the presence of institutional buying. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of 2 to 1. Considering the adv/dec volume ratios were negative by 10 to 1 early in the morning, the volume spread by the closing bell was pretty good. On September 8, when the S&P 500 closed more than 2% higher, recall the adv/dec volume ratio in the NYSE was positive by only 3 to 2.
For the first time this month, we saw some positive signs in yesterday's market action. Although the S&P 500 and Dow Jones Industrial Average gained a greater percentage during the September 8 rally, yesterday's buying was not primarily limited to the financial sectors. This time, the Nasdaq kept pace with the other indexes. Further, we actually saw a handful of individual stocks breaking out to new 52-week highs yesterday. This differs greatly from the September 8 rally, in which the biggest gaining stocks were merely bouncing off their lows.
After observing the complete rebound in the S&P 500, we made a judgment call to sell our position in the UltraShort Basic Materials ProShares (SMN). Though the basic materials sector continued to show relative weakness to the broad market, we didn't want to get into a situation where we risk giving all our profits back if the market forms a short-term bottom from here. So, rather than holding out for original price target, a few points higher than the previous day's close, we sold SMN for a gain of 8% since our September 5 entry. Upon seeing confirmation the bullish reversal was likely to hold, we sent an Intraday Trade Alert to subscribers of The Wagner Daily, and initiated a new long position in iShares Nasdaq Biotech (IBB). Because the biotech and medical-related sectors were leading the market before the recent sell-off, we expect those sectors to lead the reversal higher, IF indeed the broad market attempts to form a short-term bottom here. As IBB had begun to form a base over the past week, our plan was to buy IBB when/if it rallied above the high of the preceding two days. The horizontal line on the daily chart below illustrates our entry point:
Admittedly, IBB still has a lot of overhead supply to contend with. Specifically, it must overcome its 20 and 50-day moving averages, which have converged overhead. Nevertheless, our entry point was low enough that it was justified because of such a positive positive reward/risk ratio. If IBB rallies to its 20/50-day MA convergence and acts poorly, we can quickly close the position and still realize a decent gain. But if it happens to power through that area of resistance, our low entry price will allow us to have a wider stop that affords for holding through pullbacks on the way back up. With some of the least-damaged chart patterns in the entire ETF market, the various healthcare ETFs, including IBB, BBH, and IHI, are probably one of the best places to be if indeed the stock market forms a short-term bottom from here.
Several factors make us think a short-term bottom in the broad market may form right here. First, as mentioned earlier, we finally saw positive intraday price action and leadership among a few stocks for the first time this month. Overall, yesterday's session was much more bullish than the rally of September 8. Yesterday morning, both the S&P 500 and Nasdaq Composite also "undercut" support of their prior closing lows from July 2008, then reversed to close well above those lows. This is bullish action that points to institutional buying into weakness. Finally, the major indices formed "bullish engulfing" candlestick patterns on their daily charts. This pattern occurs when an index opens below the previous day's low, but rebounds to close above the previous day's high. Below, we've highlighted this pattern on the daily chart of the S&P 500 SPDR (SPY), a popular ETF proxy for the S&P 500 Index:
Although we think there's a fair chance that a short-term bottom may form from here, realize we have not suddenly turned into raging bulls. Both the intermediate and long-term trends remain exceedingly bearish, and the main stock market indexes have a ton of heavy lifting to do in order to change that situation. Still, because of yesterday's price action, we think the reward/risk ratio on the short side of the market is no longer very attractive, at least in the short-term. We are "dipping a toe in the water" with just one long position for now, but we'll be monitoring our entire realm of ETFs for other bullish setups in the coming days. If we're wrong, and the major indices immediately crash through yesterday's lows, our risk is still minimal at this time.
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.
Morpheus Trading Group is pleased to present you with a complimentary copy of the newly updated Morpheus ETF Roundup (v 2.0). Initially launched in May of 2006, the Morpheus ETF Roundup is a user-friendly reference tool that groups all the ETFs we trade by sector and sub-sector, then allows you to easily compare the various fund families that offer a product within each group. Confused by the more than 700 different exchange traded funds on the market? Do you wish there was a quick and easy way to group all the different ETF families by sector and sub-sector, but without wasting your time on ETFs that trade only a few hundred shares per day? If so, you will appreciate that we at Morpheus Trading Group have already done the hard work for you!
With the Morpheus ETF Roundup, we have taken the entire universe of ETFs we trade (those with an average daily volume of at least 50,000 shares), and assembled them into this user-friendly, quick-reference database. With this guide, traders and investors can easily compare the various ETF fund families that are correlated to a particular sector or industry. Want to learn more about a particular ETF on the guide, such as the heaviest weighted underlying stocks? Simply click on any ticker symbol to jump to the web page for that fund. The Morpheus ETF Roundup is updated on an as-needed basis, in order to keep you abreast of major groupings of new ETFs as they are launched. The best part is. . .it's free!
If you experience any difficulties downloading the Morpheus ETF Roundup, please read the following troubleshooting tips:
We are confident you will find the new Morpheus ETF Roundup to be a great reference tool. If you have any questions or comments on it, please send us an e-mail.
Enjoy!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:
Yesterday, per Intraday Trade Alert to subscribers of The MTG Stalk Sheet, we bought a new position in Varian Medical Systems (VAR). This is just a brief explanation of the actual trade setup.
The top chart (daily interval) clearly shows the relative strength that VAR has shown versus the broad market over the past two weeks, as it formed a tight range (flat base) at the highs, holding above the 20-day EMA. If/when the broad market reverses, VAR should be one of the first stocks to push higher. We went long VAR on the breakout above the hourly downtrend line late Thursday afternoon, as the broad market put in a fairly strong reversal bar to the upside. We are looking for a quick 2-5 day pop in price.
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.
 | 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 a sincere review on Amazon.com.
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:Last week's sell-off caused nearly all the Market Segment ETFs in the "ascending trend" list to hit their reversal triggers, sending them to the "descending trend" list. Since the change in trend directions occurred in such a short period of time, the broad-market ETFs are now considered to have a choppy trend pattern and should be approached with caution in the near-term. After key breaks of support in recent days, expect volatility to expand in the near-term. Continuation of this pattern is bearish over the long-term.
A handful of Industry Sectors fell into the "descending trend" list last week, but trade opportunities on the short side are still quite limited. Please review the updated ETF Trend Tracker report for details about stops and new entries. Basic Materials (XLB) recently broke below key support of a multi-week consolidation. Wagner Daily subscribers know we are now long the inversely correlated UltraShort Basic Materials (SMN). Biotech (BBH) was one of the new ETFs on the "descending trend" list, but the biotech industry is still trying to exhibit a final show of relative strength.
Within the Specialty Sectors, Natural Gas (UNG) and other energy-related ETFs grinded lower. Virtually every ETF in this sector closed near their lows of the week. Silver (SLV) hit new lows last Friday, and continues its steep descent. Precious metals and energy ETFs have been posting very similar chart patterns recently. This makes it challenging for investors who wish to establish ETF portfolios with a low correlation to the main stock market indexes.
The mid-term (IEF) and long-term (TLT) bonds moved higher last week. The short term (SHY) and Corporate bonds (LQD) were flat.
The International sectors continued to generally slide lower, and many ETFs already have short-side gains in the double digit range. Check out the "% Change" column in this week's report, and you'll find Brazil (EWZ) and Korea (EWY) have gains of over 30% on the short side.
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.