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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
  • A few ETF setups for short-term traders 0 comments
    Mar 30, 2010 9:05 AM | about stocks: GRO

    Stocks opened moderately higher yesterday morning, then meandered in a sideways range throughout the day. Closing near the middle of its past week's trading range, the S&P 500 rose 0.6%. The Nasdaq Composite and Dow Jones Industrial Average registered identical gains of 0.4%. The small-cap Russell 2000 and S&P Midcap 400 indices advanced 0.5% and 0.8% respectively. All the main stock market indexes finished around the midpoint of their intraday ranges.

    Volume levels continued to decrease, as more traders moved to the sidelines ahead of the upcoming holiday weekend. Total volume in the NYSE was 8% lighter than the previous day's level, while volume in the Nasaq declined 16%. Like the previous day, turnover was below 50-day average levels. Market internals improved slightly, but were still unimpressive. In the NYSE, advancing volume exceeded declining volume by a margin of approximately 2 to 1. The Nasadaq adv/dec volume ratio was positive by 3 to 2.

    Despite the bearish "shooting star" candlestick patterns that formed on the charts of the major indices on March 25, stocks have yet to follow through with a substantial downside correction. But since upside momentum has also been absent, it's starting to look more and more like the main stock market indexes will merely correct by time, rather than price. In overly bullish environments, stocks will often trade in a tight, sideways range, enabling the short-term moving averages to rise up and provide support, rather than the major indices actually pulling back to meet those moving averages. As such, we continue to see very little in the way of ideal ETF trade setups correlated to the broad market. The consolidation on the daily chart of iShares Real Estate Index (NYSEARCA:IYR) is a good example of a "correction by time:"

    <.p>For short-term traders looking to take advantage of a quick, mid-trend "pop" in strongly trending ETFs, there are a few possible setups that are buyable on the breakout above the hourly downtrend line.. One is Ultra Semiconductors ProShares (NYSEARCA:USD). The daily chart below shows the overall trend, while the shorter-term hourly chart that follows illustrates a potential entry point for a quick trade:

     



    The iShares Healthcare Providers (NYSEARCA:IHF) is a similar setup, which is buyable for a short-term move above yesterday's high. Take a look:

    A mid-trend entry for quick, short-term traders may be found in iShares Thailand Index (NYSEARCA:THD), which has shown great relative strength this month, but is now in short-term pullback mode. Take a look at the daily chart of THD below:

    If THD rallies above yesterday's high, it will move above its 20-EMA on the hourly chart as well. This would trigger a valid entry for a short-term, mid-trend pullback entry. However, if buying while THD is still well above its 20-day EMA, a tight protective stop may be a good idea. Exiting the trade on a reversal below yesterday's low would minimize risk, while providing traders with a potentially better entry point in the near-term.

    We presently have four open positions, each of which is showing an unrealized gain. Those positions are U.S. Dollar Bull Index (NYSEARCA:UUP), iShares Xinhua China 25 Index (NYSEARCA:FXI), ProShares UltraShort 20+ Year T-bond (NYSEARCA:TBT), and a short position in Market Vectors Brazil Small Cap (NYSEARCA:BRF). As such, we are not aggressively looking to enter new trades right now. We probably won't buy any of the trade setups above, if the trigger for entry, but just wanted to pass the information on to subscribers who may be short-term traders. Our portfolio now has a low correlation to the direction of the broad market, which is ideal during sideways, range-bound periods.

    Open ETF positions:

    Long - UUP, FXI
    Short (including inversely correlated "short ETFs") - TBT, BRF
    The commentary above is an abbreviated version of a daily ETF trading newsletter, The Wagner Daily. Regular subscribers receive daily updates on all open positions, as well as new ETF trade setups with detailed trigger, stop, and target prices. 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.


    Disclosure: Long FXI, Long UUP, Long TBT, short BRF
    Themes: USD, THD, IYR Stocks: GRO
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