Seeking Alpha

Morpheus Tradin...'s  Instablog

Morpheus Trading Group
Send Message
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
My company:
Morpheus Trading Group
My blog:
Morpheus Trading Group - swing trading blog
My book:
Advanced Technical Analysis of ETFs
  • 2 ETFs Setting Up For Low-Risk Trend Reversal Buy Entries ($TBT, $TAN) 0 comments
    Mar 11, 2013 2:12 PM | about stocks: TBT, TLT, TAN

    With our stock and ETF swing trading strategy (overview here), there are three main types of trade setups we take: breakouts above consolidation, pullbacks to near-term support (in uptrending stocks), and trend reversals. In healthy markets, we primarily focus on buying breakouts and pullbacks. However, we occasionally spot low-risk trend reversal setups, which often offer a very positive reward to risk ratio.

    There are two new "official" ETF swing trade setups we are targeting for potential buy entry going into today's session, both of which are trend reversal plays. The first is ProShares UltraShort 20+ Year Treasury Bond ETF ($TBT). The technical criteria for this setup is detailed on the weekly chart below:

    (click to enlarge)

    Buying a trend reversal does NOT mean "bottom fishing," which is akin to catching a falling knife. Rather, the stock or ETF must first indicate a high likelihood that a significant bottom has already been formed. For this, we specifically look for the stock or ETF to both trade in a sideways consolidation pattern for at least several months. More importantly, it must also form at least one "higher low" within that consolidation period (two is preferable).

    Additionally, we always make sure the 10-week moving average (same as the 50-day moving average) has crossed above the 40-week moving average (same as 200-day moving average), which confirms the bearish momentum has reversed. Then, we buy the stock or ETF when it breaks out above the highs of its consolidation (horizontal price resistance).

    As you can see on the chart above, $TBT meets all of these qualifications for a trend reversal play. The ETF has been consolidating in a sideways range since June 2012, and has formed two "higher lows" since then (November 2012 and February 2013). Then, after four weeks of tight consolidation near the high of its range, the ETF "undercut" support of its 10-week moving average just two weeks ago, but zoomed right back up to close at the highs of its range last week. Such price action is bullish and often precedes major breakouts.

    Because $TBT is a leveraged inverse ETF, there is a degree of underperformance to the underlying index (long-term treasury bonds) as the holding period increases. Therefore, short selling iShares 20+ Year T-bond ETF ($TLT) is technically better than buying $TBT. However, since traders with a non-marginable cash account (IRA) are unable to short sell anything, $TBT or $TBF (non-leveraged version of $TBT) is a decent alternative. For this swing trade setup, members of The Wagner Daily technical trader newsletter should note our predefined and exact entry, stop, and target prices on the "watchlist" section of today's report.

    The second ETF trend reversal setup we are stalking for potential buy entry today is Guggenheim Solar ETF ($TAN). Like $TBT, this ETF meets the same trend reversal requirements on its weekly chart interval. However, it's actually the daily chart pattern that makes this trade setup enticing. Take a look at the chart below:

    (click to enlarge)

    In mid-February, $TAN attempted to break out above a five-week base of price consolidation (point "A"). However, the breakout failed, causing the ETF to fall back to the lows of its range (point "B") less than two weeks later.

    If you are new to trading, you may understandably assume failed breakouts are a bad thing. But the reality is that failed breakouts that hold support of the prior range often lead to some of the most explosive breakouts on the second breakout attempt. Since many traders buy the initial breakout attempt, then quickly sell when the breakout fails, it has the effect of absorbing overhead supply. In turn, this makes it easier for the stock or ETF to zoom higher on its next move up.

    In the case of $TAN, we like that the ETF firmly found support at the lows of its prior range, which has conveniently converged with major support of its 200-day moving average (orange line). If this ETF triggers for buy entry, bullish momentum should cause it to surge above last month's high shortly thereafter. Again, Wagner Daily subscribers should note our detailed parameters for this trade setup on today's watchlist.

    Check out our free trading blog, custom stock screening software, and other resources for momentum swing traders at MorpheusTrading.com.


    Follow Us: Follow us on Google+ Follow us on Twitter Join us on Facebook Our trading blog - RSS feed

    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.

    Original Source

Back To Morpheus Trading Group's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.