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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
My company:
Morpheus Trading Group
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Morpheus Trading Group - swing trading blog
My book:
Advanced Technical Analysis of ETFs
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  • Will Stocks Spring Higher In Autumn?
    The Path To Profits? The Path To Trading Profits This Fall?

    After chopping around in a sideways range throughout the summer months, stocks are mostly hanging out near the same levels as the end of spring.

    It's commonly referred to as the "summer doldrums," a phenomenon that occurs nearly every year due to seasonal volume declines in the stock market.

    You know how those market-moving Wall Street big shots need to jet off to their holiday homes in the Hamptons every year, right?

    The rest of us need to recharge our batteries too, and the end result is typically a lazy lack of direction in the stock market.

    But even though most traders appreciate the summer downtime as a chance to "catch their breath," stock operators also look forward to the fall because of the trend resolution the passing of summer usually brings.

    In this blog post, we take a concise and objective look at ETFs of the main stock market indexes, so that we may have a view of the "big picture" trends of the major indices going into autumn of 2015.

    Read on and be sure to jot down the key price support levels to watch in the coming weeks...

    $SPY (S&P 500 ETF) - Pivotal Support Level Must Hold

    The SPDR S&P 500, a popular ETF proxy for the S&P 500 Index, formed a bullish reversal bar last week that successfully defended the lows of the last significant reversal in early July.

    Both of these reversals caused the price to dip below the pivotal 40-week moving average (same as 200-day moving average) in the prior week before reversing to close in the upper third of the week's trading range and back above the 40-week moving average.

    The ellipses on the weekly chart of $SPY below show the bullish reversal candlesticks:

    (click to enlarge)

    As long as the S&P 500 holds above its 40-week/200-day moving averages, odds favor an eventual resumption of the dominant uptrend.

    The two bullish reversal bars also hint at higher prices, BUT all bets are off on near to mid-term strength if $SPY prints a weekly close below the low of two weeks ago ($204 to $205 level).

    Such price action would convincingly put the price below key long-term support of the 40-week/200-day moving average, which would surely spark a spike in negative sentiment.

    $QQQ (NASDAQ 100 ETF) - Barely A Market Leader

    With an average of 100 to 200 million shares virtually trading hands nearly every day, Powershares QQQ Trust, which tracks the movement of the large-cap NASDAQ 100 Index, is one of the most heavily traded ETFs around.

    Although its price gain over the summer doldrums was certainly nothing to write home about, the NASDAQ 100 has indeed been showing slight relative strength to the S&P 500 Index by closing each of the past six weeks above intermediate-term support of its 10-week moving average (same as 50-day moving average).

    The NASDAQ 100 relative strength is confirmed by the fact that tech monsters such as $AMZN, $GOOG, $NFLX, $PLCN, and $FB have all moved to new 52-week highs and are presently holding up.

    On the weekly chart below, notice how $QQQ has closed above its 10-week moving average (teal line) in each of the past six weeks:

    (click to enlarge)

    Even if $QQQ loses pivotal support of its 10-week moving average, the critical 40-week moving average (orange line) is still there to catch it.

    Since it would be the first test of the 40-week moving average this year, the NASDAQ 100 should at least form a near-term reversal and bounce significantly higher off that level before heading much lower in the event of correction.

    $MDY (S&P Midcap 400 ETF) - Clinging To Crucial Support

    Like the S&P 500, buyers have repeatedly stepped in on dips below the 40-week moving average in $MDY, an ETF that facilitates trading the S&P Midcap 400 Index.

    With two of the past three weeks printing bullish reversal bars, the $265 - $267 range is an important area of long-term price support that needs that should hold on a closing basis.

    But as with the chart of $SPY, a breakdown below the prior lows would put $MDY in a precarious position:

    (click to enlarge)

    $IWM (iShares Russell 2000 ETF) - Moment Of Truth Is Near

    The trend of small cap stocks is often a reliable indicator of the overall sentiment of the market.

    When traders are feeling positive about future economic prospects, small caps frequently lead the rest of the major indices because speculators realize that such stocks typically have the greatest upside potential in bullish markets.

    Conversely, money tends to flow out of small caps and into more "safe" blue chips when there is more uncertainty in the environment because investors become more conservative.

    Given the above, we are NOT loving what we are seeing in the small-cap Russell 2000 Index (and $IWM) right now.

    Take a look:

    (click to enlarge)

    Along with its bearish close below the 40-week moving average in each of the past three weeks, $IWM also had a false breakout to new highs back in June.

    When a stock or ETF breaks out above a valid base of consolidation, but quickly fails and slams back down into the prior trading range, the bulls who bought the breakout are forced to sell because they got trapped with the failed breakout.

    Selling pressure from the bulls subsequently attracts the bears, who further add to the selling pressure.

    The combination of 3 straight weeks closing below the 40-week moving average and the recent false breakout does give us cause for concern.

    But don't least not yet!

    Despite showing relative weakness, $IWM recently "undercut" its prior two-week low before reversing to close in the upper half of the week's range.

    This might indicate bottoming action, but the key level to watch is around $118, as a break below the prior low of that reversal bar would be bad news and would definitely weigh on the rest of the major indices.

    $TLT (iShares 20+ Year T-Bond ETF) - For The "Big Picture" Analysis

    Although the performance of the bond market does NOT affect our day to day swing trading stock picks, having a general idea of how bond ETFs such as $TLT are performing helps us with our "bird's eye view" of the overall market trends and sentiment.

    When there is fear in the equities markets, money tends to flow out of stocks and into treasury bonds, so strength in $TLT might be considered bearish for the stock market (though this is NOT always the case).

    On the weekly chart of the long-term bond ETF below, notice that $TLT is running into overhead resistance of its 40-week moving average.

    If this resistance leads to a stall lower, we might expect small and midcap stocks to shine (at least in the near-term).

    This is especially true if $TLT fails to hold above its rising 10-week MA.

    (click to enlarge)

    Bulls Still Have The Upper Hand (For Now)

    If the weekly charts of the major stock indexes continue to put in "higher lows" throughout August and September (avoiding a breakdown below the prior lows is key), the market may still have enough gas for a healthy rally to close out the year.

    But whether or not it plays out this way remains to be seen, as there are definitely some mixed signals creeping into the market.

    As always, we never try to predict which way the market will go; we prefer to leave that to all the self-proclaimed "gurus" running amok.

    Rather, our stock trading setups are simply based on putting the odds in our favor by objectively buying stocks with the greatest statistical odds for profit, then letting the chips fall where they may.

    The market may still slightly favor the bulls, but market conditions can and do change in a flash (that's why we always use protective stops).

    Regardless of which direction the stock market resolves itself as it leaves the summer doldrums behind, our proven trading system (give it a try) has us covered either way.

    Aug 20 9:38 AM | Link | Comment!
  • How We Shook Out The Trading Profits In Shake Shack Stock

    In trading, when to "take the money and run" on a winning trade depends on whether the original trade setup (the reason for entering the trade) was a quick, momentum-driven swing trade or a core trade that is based on a combination of strong technicals and a history of high earnings growth.

    In the case of the 27% gain we recently locked in with the $NXPI trade, it was a core trade that we held for several months.

    But this time around, we walk you through a purely momentum-driven setup instead, a trade that bagged Wagner Daily subscribers about a 30% share price gain in $SHAK over a 3-week period.

    Continue reading to learn how this stock entered our radar, and why we bought and sold when we did...

    Nightly Process For Daily Profits

    Our daily stock scanning process is what keeps us in tune with the market, as the number of bullish chart patterns with leading stocks is one of the best indicators of the market's true bullish momentum.

    Each night, we run through several scans (using a combination of our online stock screener and good ol' fashioned elbow grease) to search for stocks and ETFs with valid basing patterns, which are then added to our internal watchlist to monitor for low-risk entry points.

    Specifically, there are 3 basic stock scans we run each and every night:

    • Combo - Scan for leading stocks trading near 52-week highs, with top -ranked fundamental and technical ratings (strong earnings and revenue growth).
    • Relative Strength - Scan for stocks that have made a strong advance over the past 6 to 12 months (a pure technical price scan with no fundamentals).
    • IPO - Scan all IPOs within the past two years, with an emphasis on those within the past 6 months, for bullish chart patterns.
    IPO + Strong Technicals = Explosive Action

    Although not many of the trade setups we detail in our stock picking report are from the IPO scan, we always look forward to trading those stocks that eventually appear in the IPO scan because we have learned over the years that a combination of an IPO with a bullish chart pattern leads to nice breakouts with a high level of reliability.

    About two months ago, $SHAK first appeared in our IPO scan and we first took notice of the price action as it set a higher low in late February, while holding the rising 10-day moving average.

    On March 12, $SHAK opened about 10% lower due to a negative knee-jerk reaction to an earnings report, but buyers immediately stepped in and not only erased the intraday loss, but surprisingly pushed the stock to a positive closing price!

    The result of that wild day of trading was the formation of a wide-ranged candlestick that closed above the prior day's high on heavy volume.

    This bullish reversal candle was certainly a clear buy signal; however, we patiently waited for a lower-risk buy entry to develop (because there wasn't one at the time).

    The Entry

    After a 3-day pullback (on declining volume) to the 10-day moving average (a bullish sign), we decided to list $SHAK as a buy limit or buy stop order (whichever triggered first was the one we would take) in the March 18 issue of The Wagner Daily.

    The daily chart below shows you how the chart looked when we bought the stock in mid-March:


    On the morning of March 18, $SHAK "undercut" the prior day's low and triggered our buy limit order at $45.10.

    Once again, buyers arrived on price weakness, enabling the stock to reverse and rally to close in positive territory and above the prior day's high.

    As anticipated, price action followed through to the upside over the next few days, and quickly cleared the high of the wide-ranged reversal candle from March 12.

    The Exit

    After a few weeks of consolidation at the $50 level, $SHAK exploded higher over two sessions, allowing us to sell two-thirds of the position into strength, netting a 29% price gain on the open of April 16:

    $SHAK exits

    Although we sold on the open of April 16, it would have also been a good exit to have sold partial size on the prior day's open or on the close of the second big up day as well.

    After such a massive rally in a short period of time, we made a judgment call to significantly tighten the stop on our remaining shares, in order to protect the profits while still giving the setup a small bit of breathing room.

    Just a few days later, $SHAK triggered our stop for the remaining one-third of the position, as it slipped below the prior day's low (32% gain on the remaining shares sold that day).

    How Long Do You Like To Hold?

    For a pure swing trader, selling into strength of an explosive move like this is usually the way to go.

    However, traders who are comfortable with being more patient with the action could alternatively have sold partial size (one-third to one-half of shares) into strength, then placed a very wide stop to hold the remaining shares longer.

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

    Original source of article

    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.

    © 2002-2015 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Apr 22 5:50 AM | Link | Comment!
  • 3 Top Tips From A 20%+ Winning Stock Trade

    Recently, we locked in an average share price gain of 23% through buying and selling shares of NXP Semiconductors ($NXPI), and we are still long one-third of the initial position as well.

    As always, a few valuable lessons and tips from this trade can be added to your trading arsenal, so let's take a simple, objective look at why we bought $NXPI in our nightly stock picking newsletter, and what was learned from it as well. Read on...

    The Setup

    At the beginning of the year, $NXPI first caught our attention after following up an impressive 40% rally (from late 2014) with a period of price consolidation above its 50-day moving average.

    As January progressed, the price action tightened up a bit more, causing the semiconductor stock to oscillate in an 8% price range, while still holding above key support of its 50-day MA.

    On February 6, $NXPI tested the high of its band of consolidation by probing above the $82 level on heavier than average volume.

    Two days later, the stock formed a tight inside day on lighter volume, giving us a pretty low-risk entry point based on the bullish price and volume action of February 6.

    The Buy Entry

    After forming the inside day, we listed $NXPI as a potential buy entry in the Watchlist section of the February 11 issue of The Wagner Daily.

    Specifically, we told subscribers we were placing a buy stop to enter the trade on a move above the high of the February 10 inside day.

    The daily chart below shows the actual trade setup at that time:


    As anticipated, $NXPI triggered our buy entry that day and subsequently cruised 6% higher before stalling and waiting for near-term support of the 10-day moving average to catch up to the price (which it did on February 23).

    As shown on the following chart, $NXPI gapped sharply higher on a news-driven move that occurred on March 2, then again traded in a tight, sideways range while waiting for the 10-day MA to catch up (which occurred on March 12).

    The First Exit (27% Gain)

    On March 23, the stock showed its first sign that a potential short-term pullback may be around the corner by forming a bearish engulfing candlestick pattern.

    As such, we made a judgement call to lock in some profits by selling about 1/3 of the position size the following day (March 24).

    On that first exit at $104.83, subscribers who followed the trade setup netted approximately a 27% gain.

    On the chart below, notice how a touch of the 10-day MA (dashed blue line) perfectly acted as near-term price support several times after the initial February 11 breakout:

    $NXPI first sell

    The Second Exit (18% Gain)

    After locking in profits on partial share size, we tightened the protective stop to protect gains on another 1/3 of the position size.

    On April 6, $NXPI gapped down on the open and clipped that stop (beneath the April 1 low), enabling us to lock in an 18% price gain on the second third of the position (sold at $97.65).

    The second exit is shown below:

    $NXPI second sell

    As of today (April 15), we remain long the final third of the position with an unrealized gain of about 20%.

    From here, the plan is to buy more shares with another low-risk entry of a pullback to the area of the rising 50-day moving average (currently just below $95).

    Top 3 Takeaways

    There are a few great tips (mini lessons) to be learned from this trade review, which will surely help to increase your profits in any stock trades you make in the future:

    1. On high-momentum stocks that have broken out and then enter into a sideways consolidation pattern, the 10-day moving average is a simple, yet highly reliable indicator to help determine when the stock may be ready to resume its ascent.
    2. When sitting on a winning stock, patient and disciplined traders are rewarded. Although we bagged a 27% gain on the initial exit of one-third of the position, realize that its required the patience to hold the trade for six weeks.
    3. Proper trade management is nearly as important as picking the right stocks. $NXPI is just one of many stocks that have zoomed sharply higher in recent months, but even traders who picked one of the right stocks could still have easily realized a much smaller gain (or possibly even loss if the timing is wrong). That's why we always provide exact and updated entry, stop, and target prices for each trade setup in our swing trading newsletter; picking a winning stock is one thing, but knowing the right time to buy and sell is a whole different ballgame.

    Overall, perhaps the biggest tip for newer traders (and a reminder for experienced traders) is that losing trades should always be dumped quickly and without hesitation, but winning trades should always be held until price action gives a valid reason to sell.

    As long as the price action of $NXPI remains bullish, we will continue to hold (and possibly add to) the remaining third of our position that is currently showing a 20% unrealized share price gain.

    This article first appeared at

    Apr 15 8:11 AM | Link | Comment!
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