Due to the plethora of market-moving news floating around these days, violent, whipsaw moves in both directions on the broad-based indices and ETFs have made intraday gyrations of three or four percent the norm in recent weeks. But one way to see through the noise of the dizzying daily charts is to take a look at the longer-term trends found on the weekly and monthly ETF charts. Of particular interest is the monthly chart of the S&P 500 SPDR (SPY), a popular ETF proxy for the S&P 500 Index. Take a look at the chart below:
The dashed, ascending blue line on the SPY chart correlates to support of a very long-term uptrend line in the S&P 500, which began with the low of December 1994 (the first anchor point on the bottom left of the chart). In technical analysis, the longer a trendline has been in place, the more likely the dominant trend will remain intact. As such, we consider a 14-year old uptrend line to be rather significant, and could soon have a positive impact on the direction of the stock market. Furthermore, this long-term uptrend line converges with key support of the 50% Fibonacci retracement level (from the October 2002 low to the October 2007 high). Notice how, in January and March of 2008, the SPY (and the S&P 500) bounced after testing support of its 38.2% Fibonacci retracement (circled in pink). As the 50% retracement is even more significant, odds favor a decent countertrend bounce as the S&P 500 tests its 50% retracement level at the present time. This convergence of the 50% Fibonacci retracement and support of the 14-year uptrend line (circled in green) provide valid reason for a buy entry into SPY. However, this trade should only be consider for a long-term entry, as the short and intermediate-term picture is still too negative to attempt to time just a quick bounce.
As investors aggressively sought out a place to hide, gold shot through the roof yesterday (September 17). Spot gold futures rocketed higher by $70 per ounce (9%), causing the associated precious metals ETFs to motor higher as well. After bouncing off its 11-month low just four days ago, the chart pattern of SPDR Gold Trust (GLD) came onto our radar screen as a potential reversal play. However, because of resistance of the 20-day moving average overhead, we were hoping it would form a multi-day base of support (consolidation) before moving higher. Instead, it took off on a parabolic trip yesterday. On the daily chart of GLD below, notice how it also blasted through resistance of its intermediate-term downtrend line. Rather than chasing an entry here, we'll now be watching for a substantial pullback or price consolidation before buying GLD:
In yesterday's Wagner Daily, we discussed the numerous reasons we felt the bullish reversal of September 16 coincided with market "capitulation" that would form a significant bottom. Obviously, the market quickly proved our assessment wrong, and we have no problem admitting such. Although technical analysis provides us with the facts needed to consistently put the odds of success in our favor, even the most reliable indicators will occasionally provide false signals. This is especially true in a news-driven environment.
Whenever our analysis of a particular situation is proven wrong, the first thing we do is look back at the facts available to us at the time. We then ask ourselves, "Given the available analysis we knew at that time, would we still make the same decision again, regardless of the actual outcome we now know?" If the answer to that question is "yes," we know our analysis was correct, but the pattern simply didn't follow-through. If, however, our retrospection uncovers flaws in our original analysis, we make a note to ourselves to correct that flaw whenever the same scenario arises in the future. Looking back, we still would still have answered "yes" to making the assessment of a possible capitulation on September 15. However, in hindsight, we probably should have given more credence to the copious amounts of news flying around that's causing many technical patterns to simply fly out the window.
For those who are new to trading and/or The Wagner Daily newsletter, you may be wondering why we have only presented you with a minimal number of ETF trade setups in recent weeks. In this regard, it's crucial to understand that, although we would like to present more tradeable ETF setups, sometimes the best offense is a good defense. The recent meltdown in the brokerage industry has the overall market on pins and needles, as evidenced by the extreme volatility this month. Due to the wild price action, we've intentionally been playing it safe by only entering a minimal number of trades, while primary remaining mostly in a defensive position known as cash (aka "capital preservation mode").
On September 11, we closed our bearish position in UltraShort Basic Materials ProShares (SMN) for a nice profit, but we have not entered any short positions since then. This is because we're aware of a few major differences between bull and bear markets. In bull markets, stocks and ETFs tend to form steady, upward trends, providing ideal buy entry points by gently pulling back to support of their 10 and 20-day moving averages along the way. In bear markets, however, the downward moves are usually much more violent, and often come in the form of overnight gap downs. Because so much of the market's downward price action over the past week has been in the form of large opening gap downs, the risk/reward ratio of getting short has not been very good. So, we've opted for the path of remaining disciplined and patient instead.
Since its inception six years ago, the goal of The Wagner Daily newsletter has been simple. Along with providing quality, objective trader education, our focus has been on consistently outperforming the benchmark S&P 500 Index by a large percentage, year after year. We've met this objective through a combination of market timing, rigid money management rules, and ETF selection. Over time, our strategies have been proven to work, as evidenced by our detailed cumulative performance results.
Despite a string of losses this month, our model ETF account is still showing a gain of 5% in the third quarter. As the S&P 500 is down 10% so far this quarter, we have outperformed the benchmark S&P 500 Index by approximately 15% over just the past two and a half months. Year-to-date, we're proud to say our model ETF account is showing a gain of approximately 22%, while the S&P is showing a 21% loss so far this year. As these numbers unequivocally prove, it pays to stick to our disciplined, patient strategy, even when undergoing a string of losing trades.
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.
Though the market is still under heavy selling pressure, it doesn't hurt to make a wish list of the best acting stocks so that we are prepared to strike when the time is right. Here are a few stocks that may become the next leaders, ready to double, if/when the market enters rally mode. Note: These charts are not "official" setups. We are just establishing a watch list of stocks with great relative strength:
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:The Market Segment ETFs traded through one of the most volatile weeks in recent trade history. The weekly session was marked with overnight gaps and wide ranging days in both trend directions. MTG was spot on with the S&P 500 Value (IVE), characterizing the ETF as extremely choppy, and recommended as not trading in this ETF in the prior week. This was annotated in the IVE chart. Consequently, IVE traded to the extremes of its near-term range, and triggered trend direction reversals twice within a week. Having information of knowing what not to trade is even more important than knowing what to trade. Watch for additional guidance that is annotated on each ETF chart.
The choppy trading environment was prevalent throughout the Industry Sectors. However, most trends remained intact. ETF performance from the more recent trend reversals faded, and is suffering from their weak relative strength. The ETF distribution among the ascending and descending trends is equal. On the new MTG ETF Trend Tracker 2.0 beta, it is simply color coded in the “Orders” column, such that green colored order means the ETF meets the criteria to enter or remain in a position. A yellow colored order means the ETF is experiencing weakness and use caution for new entries, or reduce risk on existing positions. Red colored order means the ETF is simply not a good candidate to enter or remain too much longer in an existing position. There may be several reasons that a red coded order may be given. These may include, but not be limited to, extreme volatility and choppy trading patterns, approaching the stop price and the pending trend reversal, unfavorable trading patterns, and nearing a trade target. The Orders column will give guidance to which ETF to position, at what risk level, and focused on profitability. Profit is key to trading success. Another updated beta version of the ETF Trend Tracker is forthcoming soon. Thanks to subscribers who submitted their recent feedback.
The Corporate Bonds (LQD) weakened in the trading session, and triggered to the descending trend.
The International sectors grinded lower, and most ETFs posted new lows last week. China (FXI) continues to accelerate in its downward slide. Germany (EWG) posted another leg lower. Mexico (EWW) traded lower to the January support level, but posted its lowest daily closing prices.
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.