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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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Morpheus Trading Group
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Morpheus Trading Group - swing trading blog
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Advanced Technical Analysis of ETFs
  • Hourly head and shoulders pattern - October 27, 2010 0 comments
    Oct 27, 2010 9:20 AM | about stocks: EWC, IEO, IXC, IWC
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    The Wagner Daily - October 27, 2010
    Concise technical analysis and picks of the leading global ETFs



    Commentary:

    Tuesday brought the fourth consecutive day of directionless trading. Since last Thursday, the major indices have "chopped" in a tight trading range. The market is obviously in consolidation mode. Stocks were mixed on the day. The Consumer Discretionary and Technology Sectors posted small gains of 0.4% and 0.3% respectively. Consumer Staples and Materials were the laggards on Monday, as both sectors shed 0.6%. The Nasdaq was the only major index to show a measurable gain, as it closed up by a meager 0.3%. The Dow Jones Industrial Average and the S&P 500 both closed at par, while the S&P MidCap 400 and the small-cap Russell 2000 both dropped 0.1% for the session. All in all, the day was uneventful.

    Tuesday's volume changed little, day over day. Nasdaq turnover increased by 10% while the NYSE's volume was off by 3%. The advancing to declining volume ratio on both indices was at virtual parity. On the NYSE, declining volume edged out advancing volume by a meager 1.1 to 1. The Nasdaq saw up volume outpace down volume by 1.2 to 1. For the session, market internals provided no indication of institutional involvement.

    The technical patterns for many ETFs suggest another move higher in the market. Many of the long set ups look identical. They might be characterized as "vanilla". We are always cautious in placing trades when the market provides technical patterns that "everyone is talking about". At times like this it is often a good practice to search for trades that have a low correlation to the market. Our current position in TBT provides a good example. Bond, commodity and international ETFs; generally show a low market correlation and we are monitoring them closely.

    One technical pattern that has been showing up frequently in the past three weeks is the "head-and-shoulders" pattern. Since three weeks is a relatively short time period, the 60 minute timeframe comes in handy. Below are several ETFs that have formed head-and-shoulders patterns over the past several weeks.







    The iShares Russell Microcap Index Fund (IWC) has been consolidating nicely for the past 10 trading days and has formed a bullish flag like pattern. Further, it has filled the gap formed on October 13th. IWC also realized a dramatic increase in volume on Tuesday. A rally above the two day high of $45.00 on solid volume, provides a potential entry point for IWC. We will provide trade details should we decide the proper conditions exist to enter this trade.






    The commentary above is an abbreviated version of our daily ETF trading newsletter, The Wagner Daily. Subscribers to the full version receive specific ETF trade setups with detailed trigger, stop, and target prices, as well as daily updates on all open positions. Intraday Trade Alerts are also sent via e-mail and/or text message, on as-needed basis. For your free 1-month trial to the full version of The Wagner Daily, or to learn about our other services, please visit morpheustrading.com.

    Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to: deron@morpheustrading.com.



    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.

    Charts created by TradeStation (tradestation.com).

    © 2002-2010 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.
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