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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
  • Why Stocks May Be Nearing A Significant Bottom 0 comments
    Nov 15, 2012 1:49 PM | about stocks: QQQ, SPY, SMN, SRS, SKF, TMF, XOP, DIA, SBUX, COH

    For a weak market to form a significant bottom, there typically needs to be at least one or two days of panic selling, where investors finally give up and just want to sell at any price. This prompts institutional investors to step in and attempt to press the "reset" button. It seems as though Wednesday's action might have been the beginning of such a panic selling move, as there isn't much out there that is still holding up. Our nightly scans for new short selling setups have dried up this week, as most sector ETFs have already been hit hard and are now too extended to offer low-risk entry points. Because of this, we will continue to lay low with regard to new positions and just focus on managing our existing winning trades.

    Earlier today, we sold ProShares UltraShort Basic Materials ($SMN) for a 9.2% gain since our November 7 swing trade entry. Yesterday morning, we sold our swing trade position in Direxion 20+ Year Treasury Bull 3x ETF ($TMF) for a net gain of 6.8% (just over 5 points). The trade setup was initially pointed out on this October 30 blog post. Later in the day, as the market broke down, ProShares UltraShort Real Estate ($SRS) hit our predetermined target price of $27.48. As such, we sold SRS into strength and closed it for a nice gain of 8% since our November 5 buy entry.

    Our only recent disappointment was yesterday's price action in Global X Silver Miners ETF ($SIL), which hit our stop price when it fell below the prior day's low. Nevertheless, our stop was in the right place because SIL subsequently sold off another 7% below our exit price by the closing bell. This type of selling action after the ETF broke technical support was a great reminder of the crucial importance of always trading with and honoring your protective stop prices. Losing trades are a normal and unavoidable part of the business, but the only way to be a consistently profitable swing trader is to ensure the losses of your average losing trades are less than the gains of your average winning trades.

    We now have three remaining open positions in our model trading portfolio, which consist of one inverse ETFs ($SKF) and two individual stocks on the short side ($COH and $SBUX). With these open positions, each of which is now showing a solid unrealized gain, we have once again tightened the stop prices so that we can protect at least half of the unrealized gains each position is showing (based on Wednesday's close). Regular subscribers of our Wagner Daily swing trading newsletter should note our updated stop prices on the "Open Positions" section of today's report. Do not look at these updated stop prices as magical resistance levels that we identified using technical analysis. Rather, we simply placed them just below the half way point of yesterday's wide-ranged candlesticks. They are basically "money stops." If our positions continue moving further in our favor, that's great. But if the price action suddenly reverses, we will still keep the majority of our profits (barring any surprise opening gaps). We'll conclude this post with a new potential swing trade setup to put on your radar screen for potential short sale entry in the coming days.

    After rallying off the summer lows and clearing the 200-day MA in early-September, SPDR S&P Oil & Gas Exploration ($XOP) stalled out after one thrust above the 200-day MA. Over the past few months, the price action has deteriorated, starting with the uptrend line break in late October, which coincided with a break of the 50 and 200-day MAs. The 20-day EMA is now below the 50-day MA, and the 50-day MA is beginning to slope lower. We also see a series of "lower highs" and "lower lows" the past two months, signaling a reversal of the uptrend. At its current level, $XOP is NOT actionable on the short side, but swing traders should add this to their watchlist for potential short entry on a bounce to resistance, in the area of the 200-day MA. This is shown on the daily chart of XOP below:

    (click to enlarge)

    Have you been losing money during the market's recent decline? If so, learn how to trade and profit in both uptrending AND downtrending markets by subscribing to The Wagner Daily newsletter. With a 30-day "no nonsense" money-back guarantee, it's risk-free to give it a try today.

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