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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
  • Looking For A Pullback In Gold ETF ($IAU, $XOP) 0 comments
    Feb 7, 2012 9:03 AM | about stocks: IAU, XOP

    Stocks eased modestly on Monday, on very light trade. The major indices chopped around in a tight range for the entire day and eventually closed just below session highs. The small-cap Russell 2000 fell 0.3%, while the Nasdaq, DJIA and S&P MidCap 400 each shed 0.1%. The S&P 500 demonstrated the most relative strength yesterday, as it closed fractionally lower. The gold, oil, utilities, healthcare and transportation sectors all struggled yesterday, while solar energy, biotechnology, oil services and networking outperformed.

    Market internals were mixed on Monday, as volume plummeted. On the Nasdaq, trade fell by 22.0%. NYSE turnover was similarly lighter by 23.6%. Declining volume marginally outpaced advancing volume by 1.1 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Monday would be considered a typical consolidation day for the broad market because prices were little changed, price action tightened, and volume dropped.

    Yesterday, on increasing volume, the SPDR S&P Oil & Gas Exploration ETF (NYSEARCA:XOP) rallied to close at its intraday high and within striking distance of a key level of horizontal price resistance. If XOP can rally above resistance of the January 26 high of $57.32, it could provide an excellent buying opportunity. We are monitoring this ETF carefully for a possible long entry.

    Since its big breakout move on January 25, 2011, the iShares Gold Trust (NYSEARCA:IAU) found resistance near $17.20 and has now pulled back near support of its 20-day EMA and uptrend line. When gold broke out two weeks ago, we received quite a few emails inquiring whether or not gold offered a buying opportunity. At that time, we stated that it was probably not the time to enter the precious metal because the trade was too extended. However, we also stated that gold may offer a buying opportunity on a pullback.

    Now that gold is pulling back, an "undercut" of the 20-day EMA could provide a possible buy entry point for IAU. Still, an undercut is not a trade setup. In order for IAU to provide a buying opportunity, it must first show some sign of stabilizing from this pullback (ie. basing action and the formation of a reversal candle). Entering an ETF simply because it approaches or touches a key support level is not advisable as there is no way to know whether or not the uptrend will resume. Trade setups are what make a trade legitimate. We will be monitoring IAU closely for a possible long entry trigger and will notify subscribers via Intraday Trade Alert if an entry is made.

    Both IYT and DVY performed well yesterday, as both maintained support at the 20-day EMA on the 60-minute chart. Following a breakout, we will often consult the 60-minute charts as a means of determining the strength of an ETF when it pulls back. As long as the price action on the 60-minute chart remains strong, there's generally little to worry about. Yesterday's broad market price action was ideal following Friday's bullish surge. Distribution days have been virtually nonexistent since late December of last year. At least for the moment, it appears as if the market is determined to continue the move higher.


    The commentary above is an abbreviated version of The Wagner Daily, a daily ETF and stock swing trading newsletter. Subscribers to the full version also receive detailed entry and exit prices for potential swing trade entries, and an additional section dedicated to individual stock trades. To learn more, please visit 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.

    © 2002-2012 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

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