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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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Advanced Technical Analysis of ETFs
  • Stalking Financial Bear ETF ($FAZ) For Quick Swing Trade Entry 0 comments
    Apr 24, 2012 9:55 AM | about stocks: FAZ

    As stocks have been correcting off their recent highs, we are seeing continued divergence among various industry sectors. The financial sector has been showing relative weakness lately, which has caused the inversely correlated Direxion Financial Bear 3x Shares ($FAZ) to form a "higher low" on its daily chart. Yesterday, on an uptick in volume, $FAZ gapped higher, but found resistance at its 50-day MA. Now, a move above yesterday's high of $23.44 would correlate to a breakout above its 50-day MA, as well as its prior high, which could provide a buy entry trigger for this ETF. However, the setup offers a slightly more conservative buy entry point over the April 10th high of $23.78 (the blue dashed line on the chart):

    (click to enlarge)Direxion Financial Bear 3x Shares (NYSEARCA:<a href='http://seekingalpha.com/symbol/FAZ' title='Direxion Daily Financial Bear 3x Shares ETF'>FAZ</a>)

    It is important that all inversely correlated ETFs, especially the leveraged ones such as $FAZ, are entered with a very near-term time horizon (ideally not more than a few days). This is because the daily rebalancing of the portfolios of inverse leveraged ETFs causes an underperformance versus their underlying indexes, and this underperformance increases the longer the trade is held.

    Our four open swing short positions (including two inverse ETFs) in The Wagner Daily swing trading newsletter are each now showing a solid unrealized gain ($DUST, $SOXS, XLNX, and ORCL), aided by the Nasdaq losing key support of the 2,976 level yesterday. Regular subscribers should note our updated stop and target prices in the "open positions" section of the newsletter. Overall, it now appears likely that the tech-rich Nasdaq may need to build a base if it is to move to higher ground. If the S&P 500 loses support of its April 10th swing low of 1,357, the broad market could easily see a more pronounced pullback from its highs.

    Stocks: FAZ
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