As the U.S. Congress postured over the eventual terms of the Fed's financial bailout package yesterday, stocks hinged on every word, bobbing and weaving their way throughout the session. After drifting lower at mid-day, the major indices briefly recovered into positive territory later in the afternoon, but selling pressure in the final thirty minutes of trading shoved stocks back into the red. The Nasdaq Composite lost 1.2%, the Dow Jones Industrial Average 1.5%, and the S&P 500 1.6%. The small-cap Russell 2000 fell 1.6%, as the S&P Midcap 400 declined 1.2%. Considering the stock market's recent pattern of extremely wide intraday trading ranges, yesterday's session seemed relatively quiet. However, it was disappointing that the main stock market indexes again finished at their worst levels of the day.
Turnover was mixed. Total volume in the NYSE eased 22%, marking a second consecutive day of losses on lower volume, but volume in the Nasdaq rose 7%, causing the index to register a bearish "distribution day." In both exchanges, trading remained below 50-day average levels. Market internals were negative, but not as bad as the previous day's levels. Declining volume exceeded advancing volume by approximately 3 to 1 in both the NYSE and Nasdaq.
Commodities enjoyed a stellar period of gains from August 2007 through July 2008, then entered into an inevitable correction that has been in place for the past two months. But if you haven't checked out their chart patterns in a while, now is a good time to do so because the group is generally showing signs that the intermediate-term correction may soon be finished. To illustrate this, take a look at the daily chart of PowerShares DB Commodity Index Tracking Fund (DBC), which is comprised of a diverse variety of commodity index futures contracts:
Bearing little correlation to the major stock market indexes over the past week (a very good thing!), DBC has been trending steadily higher since bottoming on September 16. Over the past two days, while the broad market has been selling off, DBC has been holding in a tight, sideways range, right at its 20-day exponential moving average (the beige line). If DBC convincingly pops above its two-day high, it will represent a breakout above resistance of its downtrend line that began with the July 11 high. DBC still must contend with overhead resistance of both its 50 and 200-day moving averages, but a buy entry above its two-day high would provide a large enough profit buffer to quickly scratch the position if DBC fails its breakout attempt. Above all, the lack of correlation to the U.S. equities market is perhaps the most attractive element of this trade setup. For your information, the approximate composition of DBC is as follows: Crude Oil 37%, Heating Oil 23%, Corn 12%, Aluminum 10%, Wheat 10%, and Gold 8%.
Yesterday, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all closed at support of their 61.8% Fibonacci retracement levels (measured from their lows of September 18 to their highs of September 19). Regarding a pullback within an uptrend, we refer to the 61.8% Fibonacci retracement level as the "last line of defense" because a violation of that support level frequently leads to a complete reversal back to the prior low. Nevertheless, as long as the 61.8% Fibonacci retracement levels hold up, stocks could still rapidly reverse back up to last week's highs within the next several days.
As per yesterday morning's Wagner Daily commentary, we bought the Ultra Russell 2000 ProShares (UWM) on the market open. It's showing an unrealized loss at the moment, but is still above our stop loss. If the major indices hold yesterday's lows, and hence the vicinity of their 61.8% Fibonacci retracements, the trade still has a good chance of working out. But regardless of whether or not it does, we still like the original reason for entry -- the positive reward/risk ratio of buying the pullback to the 50% Fibonacci retracement, as well as support of the 50 and 200-day moving average convergence on the Russell 2000. Remember that profits can never be obtained without taking some degree of risk; we, as traders, get paid for taking calculated risks. With a portfolio that is still presently 80% cash, we're certainly comfortable with the risk of having just this one trade on the table.
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 play is Variant Medical Systems (VAR).
With the broad market staging a monster reversal off the lows last week, we felt that it wouldn't hurt to establish a long position with reduced position size in case the market has bottomed out. We typically look for confirmation of a market bottom before getting too aggressive on the long side, so until then we plan to test the waters with a few open positions. The MTG Stalk Sheet focuses on locating stocks that are showing great relative strength, making new highs, and are leading or have the potential to lead the market higher. In going through our weekend scans we came up with 10 to 15 solid candidates that we felt had the potential to outperform the market over the next few weeks. One of these setups was VAR. The line chart above represents the percentage gain in VAR against the S&P 500 from VAR's breakout in late July.
What is most impressive about the price action in VAR is that it has only pulled back about 12% off the highs, while most stocks have given back 30 to 50% or more during the last market selloff. Another excellent indicator of a stocks strength is how it reacts on the first pullback to the 50-day MA after a strong breakout. Note the support VAR received each time that it clipped the 50-day MA on 9/16 and 9/18, as each intraday probe below the 50-day MA reversed well off the lows by the close. Our buy entry in VAR was over the downtrend line of the pullback, the 20-day MA, and the two-day high.
The intraday chart above shows the relative strength in VAR versus the S&P 500 on the hourly timeframe over the past two sessions. After VAR cleared the two day high on 9/23, we bought the first pullback to the breakout area that held. Given the great relative strength in VAR over the past few months, if/when the market rallies this stock should be one of the first to run higher.
Whether or not we sell VAR if/when it tests the prior highs around 66.00, or hold on and play for a bigger gain depends on the strength of the price action in the broad market.
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 gigantic, violent swings in the market caused unusual trend reversal anomalies, but this week's ETF Trend Tracker sorts through all that confusion and presents a roadmap to future positions. We've noted that several ETFs reversed their trends in both directions, some even twice in one week. Additionally, last week's volatility produced extended risk. In the current trading environment, only astute and nimble traders will prevail in the near-term. Some Market Segment ETFs reversed to the ascending trend, which has changed our outlook to more of a bullish stance. Nevertheless, we need more time to determine if the strength into the end of last week is sustainable. If the stock market holds on to its recent gains, the remaining Market Segment ETFs will drift over to the "ascending trend" column. During these pivotal periods, trade opportunities will evolve over time. Review our annotated charts, together with the report, to reveal additional trade setups that fit within the parameters of your risk tolerance.
This week, you will notice a newer look to our charts, which now display the daily price action for approximately 100 days. The heading background is color coded to reflect the "Order" column of the MTG Trend Tracker 2.0 beta. The color coding definitions are attached to the beta report. Essentially, a green color means the ETF ticker is okay to enter, long or short, depending on the slope of the blue trend line. For an ascending trend line, the line also represents the bottom of the trend channel; a descending trend line, the line represents to top of the trend channel. A yellow color code means an entry may be made, but use caution, as there is some condition to the chart pattern or fundamental factor that is not favorable. The red color code means stay away from this ETF for now. The color coding is intended for users to set up trades immediately on the next trading day. The moment the trade is completed, use the stop and target levels to manage the position. The only significant change in the chart annotation is the MTG Stop (S1). The S1 is now represented as a red, dashed line with no label.
Several ETFs in all sectors are setting up to reverse to the ascending trend. Although most of these may not show up in the imminent reversal list as of this writing, a quick review to the charts will reveal several opportunities if bullishness continues into the week.
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.