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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
My blog:
Morpheus Trading Group - swing trading blog
My book:
Advanced Technical Analysis of ETFs
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  • Why Ride The Roller Coaster When You Can Buy A Gold ETF?

    I grew up in York, Pennsylvania, which is only about a thirty minute drive to Hershey, home of America's favorite chocolates.

    As a teenager, I used to love visiting Hersheypark, a pretty cool amusement park on the Hershey grounds, specifically to ride the roller coasters.

    As a middle-aged adult with responsibilities, I rarely get the pleasure to visit Hersheypark these days, but lately I've been getting plenty of thrills and chills from the stock market alone.

    Lately, the S&P 500 Index has been a roller coaster with lots of hills and valleys, but ultimately looping back around to the starting point (though may soon break out above the range if current price holds).

    Although day to day volatility has been pretty substantial in the S&P 500, the benchmark index has merely been oscillating up and down in a wide, sideways range over the course of several months:

    (click to enlarge)

    When stocks are so indecisive on a day to day basis, it may be a decent market environment for daytraders who exit all their positions by every day's close.

    But it has admittedly been a challenging environment for trend traders who typically hold stocks for weeks to months.

    Gold - Low-Correlation Trading Solution

    Without even looking at a chart, I can tell you one of the best things about trading a Gold ETF or the spot gold futures is that the shiny yellow metal is typically not closely tied to the day to day movement in the stock market.

    As such, the challenge of the roller coast stock charts becomes a moot point and it only comes down to a matter of making sure gold is sitting a technically buyable level.

    Is it?

    Right now, select gold ETFs are indeed presenting low-risk buy entry points, but the patterns will soon lose their bullishness IF gold shares do not catch a bid and start rallying again within the next few days.

    The two main ETFs we trade are SPDR Gold Trust ($GLD), which tracks the price of spot gold futures, and Junior Gold Miners ($GDXJ), which is comprised of a basket of smaller gold mining stocks.

    Between the two, $GDXJ has clearly been showing relative strength to $GLD, so the Junior Gold Miners ETF has better odds of rallying to a new swing high before $GLD. Take a look:

    150209GDXJ

    In late December, $GDXJ made a sharp move off the lows that lasted three weeks.

    Since peaking in late January, the ETF has been in pullback mode, and is now holding above its 50-day moving average (teal line), but stuck just below resistance of its 20-day exponential moving average (beige line).

    After $GDXJ pops back above its 20-day EMA (above the $27.60 area), buyers should step in due to break of key moving average resistance, as well as a break of the downtrend line from the January high.

    Don't Cross That Line

    The first pullback to a rising 50-day moving average after a couple months of bottoming action is bullish, and typically presents a low-risk buy entry point.

    In this case, further support is provided by the highs of the last base (resistance always becomes support after the resistance is broken).

    However, all bets for another rally are off if $GDXJ fails to hold above its 50-day MA, which is definitely the "line in the sand" with this setup.

    Furthermore, this trade setup will no longer be appealing if $GDXJ does not wake up and rally above the highs of its recent range within the next few days.

    Pullbacks off the highs that are succeeded by tight-ranged price action should snap back quickly after shaking out the "weak hands."

    Go Confidently, But With Vigilance

    Given the lack of follow-through in the stock market lately, we are pleased that the chart pattern of this low-correlation ETF is presenting traders with such a low-risk buy entry point.

    Still, we must remain vigilant with all new trades now, and not be afraid to quickly scratch the trade, or bail for a small loss, if this gold mining ETF does not catch a bid soon.

    If you're tired of riding the stock market roller coaster and are looking for sound, short-term trading alternatives, subscribe now to receive our exact entry, stop, and target prices for this $GDXJ trade setup (and others like it, sent to you every night).

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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.

    Feb 13 10:53 AM | Link | Comment!
  • How Patience For A Pullback Led To A 35% Gain Over Six Weeks

    It's been a wild ride in the stock market since the new year began, which caused our market timing model to shift into "neutral" mode several weeks ago.

    But although we've been laying low while waiting for a clear trend to be established, we recently scored a solid 35% gain when we closed our position in TrueCar ($TRUE).

    Since there is always great educational value in objectively assessing the factors that led to a winning trade, let's review the trade setup that prompted our buy entry, as well as the criteria that determined when to sell and lock in profits.

    Wait, Don't Chase

    $TRUE initially caught our attention when the price doubled in less than two months last summer.

    But since we always wait for the price to come to us, rather than chasing the price higher, we simply placed the stock on our internal watchlist and waited for a substantial pullback to support.

    The inevitable pullback that eventually followed caused $TRUE to retrace about 30% off its high (an acceptable pullback for a strong stock), while coming into major support of its prior highs that preceded the summer breakout.

    When scanning for pullbacks on weekly charts, the prior highs of a legitimate base typically provides strong support because a prior resistance level becomes the new support level after the resistance is broken.

    As such, we began stalking $TRUE for a potential pullback buy entry point as it pulled into major support of its prior highs, as shown on the weekly chart below:

    1

    After holding at the $16 level for roughly two weeks, buyers started returning to $TRUE, enabling the stock to close back above its 10-day moving average, a reliable indicator of near-term support/resistance, on November 11.

    Over the two days that followed, $TRUE held onto that support level, as its 10-day moving average began turning up (a bullish sign).

    Also, the price moved back above resistance of its downtrend line that had formed off the October high. Take a look:

    1

    Because we wanted to ensure a low-risk buy entry point, we bought $TRUE on November 14 at $17.19.

    With that entry point, we were looking for the price to push higher, while holding above its 10-day moving average.

    Upon entry, we placed our initial stop price below key support of the prior swing low of $15.71 from late October.

    The daily chart below shows our buy entry point, as well as the subsequent exit point that led to a 35% gain just six weeks later:

    1

    On November 24, $TRUE pushed back above key, intermediate-term resistance of its 50-day moving average, but an ugly, one-day shakeout four days later caused the stock to dip back below its 50-day MA on an intraday basis.

    Nevertheless, we had the luxury of being able to remain patient when that shakeout occurred because our early pullback buy entry still enabled the trade to remain above our entry price.

    Since our entry was so low, we felt we could stick with the position through a potential pullback, as long as it did not break the 50-day MA on heavy volume.

    Further, since we bought $TRUE at an ideal, low-risk entry point, we utilized a "set it and forget it" approach to stop placement.

    Shakeout, Then Breakout

    After the December 1 shakeout below the 50-day MA, buyers immediately returned to the scene, enabling $TRUE to quickly zoom all the way up to the $23 level before reversing with a bearish engulfing candlestick (with light volume) on December 12.

    After bouncing off the 50-day MA in the mid-December pullback, $TRUE rallied back to new swing highs, but then printed two days of stalling action by closing well below the highs of the day.

    Because such price action occurred after an extended, four-week rally, we made a judgment call to raise the stop to just below the two-day lows, which would enable us to lock in a very large gain in the event of another pullback.

    Tightening the stop turned out to be a prudent move, as our new stop got hit on December 29, causing us to sell the stock at $23.30 for a 35% price gain from our $17.19 buy entry point.

    Although there hasn't been much bullish follow-through in the top stocks lately, we continue working hard with nightly scanning for the next potential market leader that will soon enable us to make another nice profit, as we did with $TRUE.

    To ensure you don't miss our next big winner, sign up now for your risk-free trial subscription to The Wagner Daily, our nightly stock picking newsletter with live mentorship room.

    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.

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

    Jan 29 8:47 AM | Link | Comment!
  • 3 Key Steps To Short Selling Former Leading Stocks

    In bull markets, we focus on trading leading stocks because they present the largest profit potential in the shortest period of time.

    But what you may not realize is that, when broad market conditions turn overly bearish, those same leading stocks typically become the best stocks to sell short because they eventually assume the new title of former leading stocks.

    In this article, I will show you 3 steps, based on multiple timeframe analysis, to determine whether or not a particular market leader is primed for making money on the short side.

    But first, let's take a quick look at recent market action to confirm the bears remain in control going into the new week.

    Highest Volatility In 3 Years

    Stock market volatility really picked up last week, with the Nasdaq Volatility Index ($VXN) pushing above 30 for the first time since late 2011.

    Since late 2012, $VXN levels in the 20 to 23 range have produced trade-able bottoms on the long side, but last week's spike was such an extreme move that it suggests the potential for further downside in the broad market.

    At the very least, a test of last week's lows seems probable in the coming days.

    Although the S&P 500 has already bounced 4% off its recent swing low, the benchmark index is now closing in on a major area of resistance.

    On the daily chart below, notice how the prior swing low (from mid-August), the 20 and 200-day moving averages, and short-term downtrend line all converge in the $190 to $193 area:

    SPY RESISTANCE

    It's a similar technical picture with the Nasdaq, Dow, and other major indexes, each of which now have a plethora of overhead resistance levels to contend with.

    Because market volatility was at extreme levels last week, there was no reason to enter long positions in hopes of catching a short-term bounce in the market, as such speculative trades could easily turn sour in a heartbeat.

    Sell Short Former Market Leaders That Look Like This

    3D Systems Corp ($DDD) is a great example of the qualities we look for when short selling former leading stocks.

    As always, we analyze the chart pattern on multiple time frames, beginning with the monthly chart, then zooming in to the weekly and daily chart intervals.

    Step 1

    The first step is to assess the "big picture" of the trend by checking out the monthly chart.

    Upon doing so, notice that $DDD has registered an incredible advance of more than 5,000% since the lows of 2009.

    Even since the the $10 price level in 2011, $DDD rallied about 900% before forming a top at the beginning of this year.

    A stock that scored such massive gains (and has already formed a top) is exactly the type of move we look for on the short side:

    $DDD SHORT EXAMPLE monthly

    When a strong stock eventually breaks down below its long-term uptrend line and the 10-month moving average begins to decline, the stock is in trouble and is placed on our internal watchlist for potential short entry in our momentum swing trading newsletter.

    Step 2

    Next, we drill down to the weekly chart to look for confirmation of a bearish pattern as well.

    In the case of $DDD, the stock is in a confirmed downtrend because the 10-week moving average is below the 40-week moving average, and both averages are trending lower.

    $DDD also recently broke down below a bearish, five-month long base at the lows (read more about bearish consolidation patterns).

    The $45 level that was formerly providing support has definitively been broken and will now act as resistance on any rally attempt:

    $DDD SHORT EXAMPLE weekly

    Step 3

    Now that we have identified a former market leader on the monthly chart and confirmed its downtrend on the weekly chart, we finally use the daily chart to help us determine the best short selling entry point.

    After a persistent, four-week decline, $DDD is finally bouncing back above very short-term resistance of its 10-day moving average.

    In a steady downtrend, stocks can go for weeks without closing above the 10-day moving average for more than a day or two (just as strong stocks remain above their 10-day moving averages in overly bullish conditions):

    $DDD short example daily

    Patience, Grasshopper

    As we have written about in the past, patience to wait for a proper entry point on the short side is crucial; poorly timed entries on the short side are not forgiving.

    Although the monthly, weekly, and daily charts of $DDD are clearly bearish, this former leader is presently not a low-risk short entry.

    Rather, the most ideal entry point would be a bounce into new resistance of the 50-day moving average and/or prior lows from August ($46-$48 area).

    Nevertheless, because the stock remains in a strong downtrend, price action could simply resume lower after just a one-day close above the 10-day moving average.

    In this scenario, a move below the October 17 low could be a short entry trigger, while using a tight stop above the two-day high.

    $DDD is not yet an "official" short setup for us, but we will immediately notify subscribers of our exact entry, stop, and target prices if/when we sell short $DDD (click here to start your risk-free trial subscription today).

    How Long Will This Market Correction Last?

    Despite what popular news outlets such as CNBC might have you believe, nobody is able to predict the market's next move with 100% accuracy (but imagine if you could).

    Nevertheless, astute traders paying attention to technical signals typically have the upper hand.

    Every market pullback is different, but the current correction feels much heavier (in terms of participation to the downside) than any other pullback in 2013 or 2014.

    Throughout most of the past two years, pullbacks were fairly quick because traders were waiting to buy the dip.

    Sure, there were plenty of ugly distribution days in 2013, but it was more a case of sector rotation out of extended groups and into new bullish patterns (rather than flat-out selling across the board).

    This time around, there have been plenty of distribution days over the past six weeks, but there has been little to no rotation of money into new leaders.

    Trade What You See, Not What You Think

    Regardless of your view on recent broad market action (whether it's better to buy or sell), there now are very few stocks with bullish chart patterns; this objective fact cannot be ignored.

    Eventually, stocks will manage to find some traction and establish higher swing lows.

    But for now, its best to avoid the long side.

    With our market timing model in "sell" mode, odds of a profitable trade favor the short side of the market.

    Depending on how much the market bounces from here, we may look to establish one or two new short positions into resistance (remember we prefer to short stocks on a bounce).

    If you are prohibited from selling short (such as with an IRA account), or are simply not comfortable selling short, no problem!

    Inversely correlated "short ETFs" are an excellent, alternative way to gain short-term bearish exposure without actually selling short.

    We will be highlighting the best-looking short ETF setups in a future article, so be sure to follow us.

    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.

    Oct 21 10:47 AM | Link | Comment!
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