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Deron Wagner is the founder and portfolio manager of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his swing trading strategy with The Wagner Daily newsletter, which provides exact entry, exit,... More
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Advanced Technical Analysis of ETFs
  • Is It Time To Buy This Gold ETF Now? Here's My Technical Take On $GLD... 2 comments
    Aug 30, 2012 1:33 AM | about stocks: GLD, DGP

    One ETF on our radar screen for potential buy entry this week is SPDR Gold Trust ($GLD), a commodity ETF that tracks the price of spot gold futures. We have not discussed this ETF for a long time because it has been in correction mode, retracing from its all-time high, for nearly a year. It has also been rather flat for the past several months. However, upon closer examination of the big picture, we see that momentum of $GLD may now be reversing, which could provide for a solid swing trading opportunity on the long side. To begin with, notice the breakout above the 200-day moving average that occurred just last week:

    (click to enlarge)$GLD breakout chart pattern

    As you can see, $GLD rallied to close above major resistance of its 200-day moving average (on August 22) for the first time since March of this year. Increasing volume, which rose above its 50-day average level, helped to confirm the move. In the subsequent two days that followed the breakout above its 200-day MA, $GLD traded in a tight, sideways range. However, although such price action is bullish, the daily chart pattern presently does not yet provide us with a clearly defined buy entry point and level for setting a stop price. For that, we would need to see at least a one or two-day pullback that ideally forms a reversal candle. If that occurs, the levels for setting our buy trigger and stop prices would be much more clearly defined. As annotated in the chart above, we would ideally like to see a quick pullback to near new support of its 200-day MA (the orange line), presently just above the $160 level. Another reason we would first like to see a minor price retracement from current levels before buying is that the long-term monthly chart interval shows us that $GLD is actually running into resistance of its downtrend line from its September 2011 high:

    (click to enlarge)$GLD long-term chart pattern

    If $GLD is bumping into resistance of a downtrend line that has been in place for nearly one full year, one may be wondering why we would be considering buying this ETF on a pullback before it actually breaks out above resistance of that downtrend line. There are several reasons. Perhaps most importantly, one must remember the basic tenet of technical analysis that states a longer-term trend always holds more weight than a shorter-term trend. Therefore, even though $GLD is kissing resistance of a downtrend line that is nearly 12 months old, notice more importantly that this ETF has clearly been in a dominant uptrend since at least 2006. As such, technical analysis dictates that the odds favor an eventual resumption of that multi-year uptrend. Although the current one-year pullback off the high has been rather lengthy, it was merely proportionate (in the big picture) to the duration and extent of the uptrend for the past 6 years.

    In addition to the long-term uptrend being more powerful than the shorter-term downtrend, notice how the price action of $GLD has perfectly held support of the 20-period exponential moving average (the beige line) for the past three months. While doing so, price action also tightened up dramatically, creating a volatility contraction that should soon lead to a significant volatility contraction. Checking the volume pattern, we also notice that volume declined dramatically during the consolidation of the past several months. This tells us the sellers have been drying up, thereby making it easier for $GLD to eventually break out and attempt to resume its dominant upward trend. Finally, because $GLD is a commodity ETF, it has very low correlation with the direction of the main stock market indexes. That's why we do not view this trade as having relative weakness to the broad market.

    Overall, we like the technical setup for a momentum-based swing trade buy entry into $GLD, but we will patiently wait for a proper entry point first. When the trade setup meets our criteria for potential buy entry, our exact buy trigger, stop, and target prices will be listed in the ETF Trading Watchlist for subscribers to the full version of The Wagner Daily newsletter. Until then, we will continue to closely monitor the price and volume action of $GLD.

    The commentary above is a shortened version of today's Wagner Daily, our nightly stock and ETF trading newsletter since 2002. Subscribers to the full version receive our best daily ETF and stock picks with preset entry and exit prices, access to our proven trading strategy with market timing system, and access to our "turn key" technical stock screener software. Start your risk-free subscription to our swing trader service for less than $2 per day (based on annual rate) at http://www.morpheustrading.com.

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    DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.

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Comments (2)
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  • Welt
    , contributor
    Comments (150) | Send Message
     
    Great technical analysis. I believe it's only a matter of time before the 200 DMA starts trending upwards. By that time the 50 DMA should start drawing nearer to the 200 DMA and a golden cross should form soon after. The momentum is riding back into GLD in my opinion and I sure don't want to miss the rally back to the all-time highs and possibly higher.
    28 Aug 2012, 10:19 AM Reply Like
  • Morpheus Trading Group
    , contributor
    Comments (4) | Send Message
     
    Author’s reply » Hi Welt,

     

    Thanks for your comment. Yes, actually when the 200-day MA starts sloping up, that will indeed confirm the reversal of trend.

     

    Yesterday, with the little shakeout in gold, we now have an even lower-risk entry point into $GLD or $DGP, which can now be bought just above the Aug. 29 high, with a stop below that day's low. I like clearly defined swing trading entries like that.

     

    Cheers,

     

    Deron
    30 Aug 2012, 01:32 AM Reply Like
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