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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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  • Potential pullback buy entry in (IBB) - November 9, 2010 0 comments
    Nov 9, 2010 9:16 AM | about stocks: IBB, TMV
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    The Wagner Daily - November 9, 2010
    Concise technical analysis and picks of the leading global ETFs



    Commentary:

    Since the strong gap up on November 4th, the major averages have been consolidating in a narrow trading range. In today's action, the markets opened with mild selling pressure, caught a bid at the 11:00 am reversal period and meandered for the remainder of the session. Trading was choppy, volume was down and there was no sign of market leadership. The Nasdaq and the small-cap Russell 2000 indices ended the day flat. The S&P MidCap 400, S&P 500 and the Dow Jones Industrial average dropped 0.1%, 0.2% and 0.3% respectively. Monday's session can be characterized as uneventful. However, given the big gap day last Thursday, it is not surprising that the major averages spent a second day consolidating

    For the second straight trading day volume fell significantly on both the NYSE and the Nasdaq. In Monday's trading, turnover on the Nasdaq fell by 14%. Volume on the NYSE plummeted a dramatic 28%. On both indices, the advancing volume to declining volume ratio was almost at par. On the NYSE down volume edged out up volume by a factor of 1.2 to 1. The Nasdaq saw advancing volume slightly outpace declining volume by a ratio of 1.1 to 1. Although the internals reflected a lack of leadership on Monday, the multi-day consolidation suggests the market is preparing for another advance.

    Since our buy entry this past Friday, IDX broke through resistance on very strong volume today. IDX also showed excellent relative strength to the broad market, as it closed near the highs of the day. For our regular subscribers, the trade details are posted in the daily performance section of the newsletter.

    In the September 20th newsletter we placed the iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB) on the watchlist (see chart below). Our buy trigger was met and we entered the trade. As IBB rallied, we tightened our stop because we weren't comfortable with the price action. Despite the fact that we had not yet reached our projected target, the price action compelled us to protect our gains. On November 1st, IBB hit the stop and we realized a healthy 2.75 point profit. On Monday IBB undercut the 20-day EMA, and traded as low as $87.71. This was the first breach of this moving average since IBB began rallying on September 1st. This drop below the 20-day EMA may provide the opportunity to reenter this trade. The setup that we are looking for is a gap-up back above the 20-day EMA. A gap-up immediately following a sweep below the moving average generally signals the continuation of the trend. The stops get swept and the gap-up creates a short squeeze. Further, once the neckline of an inverse head and shoulders pattern is broken, it is quite common for an ETF to pull back into or near the neckline (As IBB has done). The former resistance is now support.





    The Direxion Daily 30-Yr Treasury Bear 3X Shrs (NYSEARCA:TMV), reversed the downtrend when it closed above the trend line on October 14th. On November 3rd this ETF saw a big burst of volume, undercut the 20-day MA, bounced off the 50-day MA and then rallied to close at the highs of the day. That's an impressive move. A volume fueled rally back above Monday's high, presents a potential buy entry for this ETF. Since TMV is highly leveraged, position size must be adjusted accordingly. Further, TMV is not intended to be held for more than a few days because of daily resets. Always use caution when trading highly leveraged ETFs.



    There are many ETFs exhibiting bullish strength. But, our strategy is to find technical patterns that provide definable risk to reward ratios. With only three days of consolidation since a major rally, we are cautious about chasing the market. Quality technical patterns yield quality trades.


    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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