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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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  • How To Know If A New Bear Market Is On The Horizon

    With bearish momentum increasing and stocks testing key support levels in recent days, one of the biggest questions on your mind may be whether or not recent price action is merely a normal bull market correction OR the beginning of a dominant bearish trend reversal.

    If I had the power to know these things with 100% certainty, I would already be topping the Forbes 400 list (incidentally, never believe anyone who tells you any "certainties" about the stock market).

    But what I can tell you with the utmost confidence is that basic technical analysis concepts such as support and resistance definitely work a majority of the time at predicting the stock market's next move.

    As such, let's take a look an objective look at the next major, long-term support levels in both the NASDAQ 100 and S&P 500 indices (using ETF charts of $QQQ and $SPY).

    By the end of my "no nonsense" analysis, you will know a few key price levels to watch that could determine whether or not a new bear market is on the horizon.

    NASDAQ 100 ETF - $QQQ

    In my April 7 blog post (definitely worth a read if you missed it), I already showed you the $83 support level in $QQQ (convergence of the February swing low, dominant uptrend line, and 40-week/200-day MA).

    If $QQQ breaks down below that pivotal level of support around the $83 area, it would put the NASDAQ 100 at least 9-10% below its recent 52-week high.

    In a bull market, a "normal" and healthy pullback from the highs typically in the 5-10% range. Therefore, if $QQQ slides more than 10% below its March 2014 highs, price action in the NASDAQ could become quite negative for at least the next several months:

    (click to enlarge)

    Next, let's pan out to a longer-term view on the same monthly chart that goes all the way back to the lows of 2009.

    In doing so, you can more clearly see the importance of that long-term uptrend line, which has been in place for the past five years and has multiple anchor points along the way:

    (click to enlarge)

    If you want to know when to expect a major change in market sentiment, I recommend you watch this 5-year uptrend line closely, as a breakdown below that level could lead to a new bear market in the NASDAQ.

    However, even if a break of the long-term trendline occurs, this scenario might not play out until 2015 because we are looking at a chart of the monthly time frame (each bar on the chart shows an entire month of price action).

    If the 5-year uptrend line is broken, the next major support level would be found around $70, which is the last big base of price consolidation.

    A test of consolidation at the $70 area would "officially" put the NASDAQ 100 in a bear market, as it would be 20% below its former 52-week high.

    S&P 500 ETF - $SPY

    In the near-term, $SPY (S&P 500) is in better technical shape than $QQQ (NASDAQ 100), as it isn't still well above support of its prior swing low from February.

    Further, the price of $SPY must break below support of a multi-year uptrend line, as well as the 10-month/200-day MA, just to pullback to the February swing low:

    (click to enlarge)

    Although the S&P has further to fall before being in danger of breaking its swing low, bearish momentum could indeed kick into high gear if that February swing low fails to hold.

    If that occurs, the next decent support level for $SPY would be around the $165 to $170 area, where there was a five-month long base in 2013.

    Beyond that, the next major support level for $SPY is near the $155 level, which is support of the prior highs from 2000 and 2007 (not shown on chart). Remember that a prior level of resistance technically becomes the new support, after the resistance is broken.

    Still, as with the NASDAQ 100, bear in mind that a pullback of this magnitude would most likely not occur until 2015, and would also put $SPY about 18-20% off its 52-week high.

    What If The Bull Has Run Its Course?

    A clear breakdown below the last major swing lows in the main stock market indexes would make for a very tough year for the equities markets, but it would not be very surprising.

    Considering that the stock market has already been rallying for five years since the lows of 2009, it is very possible the bull market has already run its course (every stock market runs in cycles).

    Overall, it's starting to look as though the rest of 2014 could be quite choppy, followed by an ugly 2015 (if the charts break down on all time frames).

    If stocks enter into a new bear market in 2015, it would obviously bad news for traditional "buy and hold" investors who must hope and pray that stocks continue on an upward trajectory forever (hint: they don't).

    However, a new bear market would not bother me because I am a momentum swing trader; the trading system taught in my nightly stock trading newsletter is designed to profit in both uptrending and downtrending markets.

    Bear Market Strategy (Just In Case)

    In bull markets, my main focus is buying leading growth stocks as they breakout from valid bases of consolidation (as well as buying those same stocks on pullbacks).

    But in bear markets, my strategy is a combination of selling short former leadership stocks as they break down (click here to see how it's done) and buying ETFs with low to nill correlation to the equities markets (such as commodities, currencies, fixed-income, and international).

    When selling short in a bear market, I scan for former leadership stocks that had a strong rally over the course of several years, but have begun to fall apart and take a beating.

    Most of the time, these stocks are about three to four months removed from their 52-week highs, and their 50-day moving averages are beginning to roll over as well.

    The general idea is to sell short a former leader that is over-owned by institutions, as it begins to rollover from the highs.

    Because banks, mutual funds, hedge funds, and other institutions need to dump the huge positions they had accumulated, some of these monster movers will plummet up to 75% below their all-time highs before they stabilize in price.

    Coach - Stalking For A Breakdown

    Coach ($COH) is a decent example of what I would be looking for in selling short a former leading stock (though it has not actually broken down yet).

    After bottoming out in 2009, $COH put in a monster 500% rally off those lows.

    It subsequently stalled out in 2012, and has basically been chopping around since then, forming lower highs while holding support at $45. This is shown on the monthly chart of $COH below:

    (click to enlarge)

    As indicated by the pink horizontal line, the $45 area has become a major level of price support.

    As such, $COH could easily drop to $30 in just a few weeks if the $45 level is broken.

    Although $COH has already pulled in about 40% off its all-time high, it could easily become a $20 stock if support does not hold.

    In the big picture, it is still a bit early to be aggressively stalking the short side of the market, but $COH is one of the stocks on my internal watchlist for potential short selling entry in the near-term.

    If $COH meets my specific criteria for a low-risk short selling entry point, I will provide subscribers of The Wagner Daily newsletter with my exact entry, stop, and target prices for the momentum trade setup.

    Obviously, many other former leadership stocks will come onto my radar screen as well, providing for plenty of opportunities to profit on the short side of the market.

    I look forward to the opportunity to help my subscribers continue to generate consistent trading profits, even if a new bear market is on the horizon.

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    Original Source

    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.

    © 2002-2013 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Apr 08 1:39 PM | Link | 1 Comment
  • As Stock Market Recovers, Here Are The Best Stocks To Buy In April

    Stocks kicked off the second quarter of 2014 with a bang yesterday (and that's no joke).

    Although the stock market was in pullback mode throughout most of March, the price and volume patterns of the past two days indicate last month's correction may soon become old news.

    If that's the case and stocks soon resume their steady, upward trend, will you be fully prepared to profit?

    By the time you finish reading this article, you will be!

    First, I will get you up to speed on the current technical state of the broad market (with a mini-lesson on moving averages), then I will highlight some of the top stocks to potentially buy this month (if market conditions continue improving).

    If you wish to skip my technical analysis of the broad market and jump directly to my stock picks below, just click here (I won't be offended).

    NASDAQ and Russell 2000 - Getting Back In Business

    Stocks followed through on the previous session's bullish reversal attempt with an impressive round of gains yesterday (April 1).

    The bullish recovery was led by the NASDAQ Composite (for a change), which enabled the tech-dominated index to reclaim both is 20 and 50-day moving averages (the sibling NASDAQ 100 did so as well).

    More importantly, higher volume accompanied yesterday's advance, enabling the NASDAQ to score its first confirmed accumulation day in more than a month.

    The Russell 2000 is also is back in business, as the small-cap index closed above both its 20 and 50-day moving averages as well.

    Below are daily charts of the NASDAQ Composite and Russell 2000 that show the technically significant improvements:

    (click to enlarge)
    (click to enlarge)

    Why Moving Averages Matters

    Moving averages play a very important role in our daily analysis of the overall stock market.

    Aside from price and volume, moving averages are one of the most important indicators of our trading strategy.

    In bull markets, the 50-day moving average is our pivotal "line in the sand." During corrections and pullbacks, the main stock market indexes must hold onto this level in order for us to continue operating on the long side of the market with confidence.

    When the major averages subsequently get back above their 20-day exponential moving averages and hold, we can then get excited about new long setups because the potential for a new uptrend (or resumption of the previous uptrend) increases.

    Overall, we can step on the gas pedal again when all the major indices move back above their 20 and 50-day moving averages (and hold for more than a day or two) after a substantial correction.

    Divergent Stock Market Indexes

    While this week's price action was certainly a step in the right direction (so far), both the NASDAQ and Russell 2000 are now in "no man's land" because the indexes are back above resistance of their 20 and 50-day averages, yet still must contend with resistance of their prior highs and short-term downtrend lines that have formed.

    On the other hand, the benchmark S&P 500 rallied to a fresh all-time high yesterday, as higher volume confirmed the move as well.

    Although the S&P 500 corrected alongside of the NASDAQ last month, the retracement off the highs was relatively shallow (less than a 38.2% Fibonacci retracement):

    (click to enlarge)

    Both the Dow Jones Industrial Average and S&P Midcap 400 indices did not close at record highs yesterday, but still managed to record new closing highs for the year.

    The breakout to new highs in the S&P 500, along with yesterday's higher volume recovery in the NASDAQ and Russell 2000, was enough to put our stock market timing model back into "neutral" mode (previously in "sell" mode since March 21).

    If the NASDAQ manages to finish above its 50-day moving average this week, our market timing system may shift back to a "buy" signal (subscribers of our nightly trading newsletter will be instantly notified if/when we re-enter "buy" mode).

    Best Stocks To Watch In April

    In terms of leadership stocks, the following tickers remained healthy throughout last month's correction and are still quite strong:

    $KORS, $TSLA, $UA, $SYNA, and $URI

    All of these stocks have the potential to quickly surge to new highs if broad market conditions remain solid.

    $INVN and $IRBT are also holding up pretty well, while $FB appears to have formed a significant bottom by following through on last week's bullish reversal candle.

    Our most recent buy entries into $FB (Facebook) resulted in two separate price gains of 49% and 12% earlier this year, but we would still consider re-buying $FB in our newsletter if it presents us with a low-risk re-entry point (such as a cup and handle pattern) in the coming weeks.

    Tesla Motors ($TSLA) - Still The Hottest Stock To Buy

    Of the stocks listed above, $TSLA remains one of the best "must own" stocks for any bullish portfolio. Aside from its incredible growth rate and other fundamentals, the technical chart pattern remains solid as well.

    Like most stocks in the market, $TSLA also pulled back from its highs last month, but the retracement was less than 20% off its peak. Considering the stock has zoomed more than 400% higher over the past year, a 20% retracement off the highs is quite minor by comparison.

    Further, the stock has pulled back to and is now holding key support of its 50-day moving average. A pullback to this level is often when institutional program trading kicks in for leading stocks.

    Overall, the price action in $TSLA remains quite healthy, and we anticipate the stock will soon resume its impressive, long-term uptrend and once again cruise to new highs.

    Our newsletter subscribers are still long $TSLA from our December 31, 2013 buy entry (current unrealized gain of 46%) because the price action has not yet given us a reason to take profits.

    However, after last month's low becomes established as a pivotal support level, we will finally raise the stop to protect our large gain, while still allowing enough "wiggle room" for the gains to accumulate even more substantially from here.

    Two For Today - $ZU and $QTWW

    Going into today, both $ZU and $QTWW are "official" buy setups on our Wagner Daily stock watchlist.

    With $ZU (see chart below), we like last week's "undercut" of both the low of the February 25 gap-up bar ($51.35) and 50-day moving average.

    That probe below two key support levels (which shakes out the "weak hands") was followed by yesterday's heavier than average volume rally above the two-day high.

    From here, we expect bullish momentum to power $ZU substantially higher in the near to intermediate-term:

    (click to enlarge)

    The second ticker on our "official" watchlist going into today, $QTWW, is consolidating in a tight range on the weekly chart, after breaking out from a tight range on big volume a few weeks ago.

    The base on base chart pattern (shown below) should eventually be resolved with an explosive move to the upside.

    QTWW has an IBD relative strength ranking of 99, and is a member of the number 1 ranked industry group (Energy-Alternative/Other), so it definitely has explosive potential:

    (click to enlarge)

    Regular subscribers of The Wagner Daily should note our preset, exact buy trigger, stop, and target prices for these two new potential swing trade entries in the "Watchlist" section of today's report.

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

    Original Source

    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.

    © 2002-2013 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Apr 02 10:55 AM | Link | Comment!
  • Here's A Hot ETF To Buy Now (Albeit A Bit Corny)

    As recently discussed in my March 26 blog post, banks, mutual funds, hedge funds, and other institutional funds have been rotating out of the NASDAQ and into the S&P 500 and Dow Jones in recent weeks.

    Although this has been leading to moderately bullish price action in select blue-chip stocks such as $IBM, more explosive, high-momentum moves have been coming from various commodity-based ETFs (which have a low correlation to the direction of the overall stock market).

    Today, I share with you the technical setup of one of the best looking ETF trade setups out there right now, so read on for all the details...

    Corn Is Popping!

    Designed to follow the price of continuous corn futures contracts, the Corn ETF ($CORN) broke out from a short-term consolidation on heavy volume yesterday (March 31), after a three-week consolidation.

    Note the drop off in volume during the base of consolidation, which was bullish:

    (click to enlarge)

    The "undercut" of the 20-day exponential moving average that occurred on the morning of March 31 was followed by a breakout above the high of the recent range (from shakeout to breakout in a few hours).

    Confirming the massive intraday reversal and breakout was a huge volume spike (nearly 400% it average daily volume).

    Whenever volume suddenly surges so massively as a stock/ETF breaks out above a tight range, it is the undeniable footprint of institutional buying activity, which acts as a gas pedal to propel the stock/ETF higher in the near to intermediate-term.

    Corn Confirmation On Weekly

    Since a key part of our technical analysis is always looking for confirmation on multiple time frames, let's zoom out to look at the longer-term weekly chart of $CORN:

    (click to enlarge)

    On the weekly chart above, notice the tight price action near resistance of the 40-week moving average (similar to 200-day moving average) over the preceding four weeks.

    When the price of $CORN broke out yesterday, it pushed above the highs of that 4-week range. It's also quite bullish that yesterday's volume alone nearly equaled turnover the entire previous week.

    With such strong volume confirming a clean weekly breakout and trend reversal, bullish momentum is likely to carry $CORN substantially higher over the next several weeks.

    As such, we have added $CORN to today's Wagner Daily watchlist as a potential buy entry in our ETF portfolio. Regular subscribers should note our exact buy trigger, stop, and target prices for this trade setup in the "Watchlist" section of today's report.

    Nice ETF To Buy Now, But What About Individual Stocks?

    Large-cap tech stocks have had a rough go of it lately, as most completely ignored the solid gains of yesterday's market rally.

    Household tech names like $AMZN, $PCLN, $GOOG, $NFLX, $TSLA, $FB, $EBAY, $BIDU, and $GMCR either closed in negative territory, or near their lows of the session (despite a 1.0% gain in the NASDAQ Composite).

    Clearly, market leadership is broken.

    Since this is the basis of our intermediate-term position trades in individual stocks, the next step is to simply wait for new leadership to emerge (which eventually happens after each significant stock market correction).

    Overall, there simply isn't much to do on the stock side. We will merely continue to lay low and wait for setups to develop on either side of the market (long or short).

    Although our nightly swing trading newsletter is basically a dynamic service that generates specific stock and ETF trade ideas, the main goal of our trading system is to aggressively trade the best technical trade setups when conditions are ideal, but also be ready and able to quickly and cut back market exposure by reducing position size on new trades (or simply not trading at all) when market conditions deteriorate.

    It is impossible to trade every single wave in the market, and trying to do so will lead to over-trading and eventual burnout.

    In challenging market conditions, simply learning how to hold on to hard-earned profits earned in the good times is a critical skill towards become a winning trader over the long-term.

    As such, let's be patient and wait for our pitch.

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

    Original 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.

    © 2002-2013 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Apr 01 1:26 PM | Link | Comment!
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