Seeking Alpha

Morpheus Tradin...'s  Instablog

Morpheus Trading Group
Send Message
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
View Morpheus Trading Group's Instablogs on:
  • Scared To Trade Stocks Now? Buy A Low-Risk Currency ETF Instead

    With leading stocks getting punched in the face over the past week (especially the past two days), there isn't much to get excited about on the long side of the stock market right now, despite oversold market conditions.

    During each market pullback in 2013, money rotated out of extended stocks and into those breaking out from quality basing patterns.

    But this time around, we are not seeing the same type of patterns as we did last year, as many more individual stocks have broken down below key support levels.

    When ETFs Are The Best Bet

    In strong and persistent bull markets, we primarily focus on trading leading growth stocks because they provide much more alpha than ETFs.

    As such, our stock trades usually outperform the gains of our ETF trades in raging market uptrends.

    But the reason we trade both stocks and ETFs in our swing trading newsletter is because select ETFs can really shine as excellent trading vehicles when the stock market is under correction or in a downtrend.

    ETFs are quite useful when broad market conditions turn sour because they enable us to scan various asset classes (commodity, currency, fixed-income, etc.) to locate the next trend that is largely uncorrelated to the direction of the stock market.

    The Euro ETF - No FOREX Experience Required

    Earlier this week, we mentioned to subscribers that we are stalking iShares Long-term T-bond ETF ($TLT) for potential buy entry, and that bond ETF remains on our internal watchlist.

    Now, we are also monitoring CurrencyShares Euro Trust ($FXE) for a low-risk pullback buy entry.

    An exchange-traded product that tracks the price of the euro, $FXE is setting up nicely as a potential intermediate-term swing trade (position trade) due to its bullish confirmation on multiple time-frames (see this blog post to learn how multiple time-frame analysis works).

    After analyzing $FXE on its monthly, weekly, and daily charts, you will surely agree this is a great ETF to monitor for potential buy entry in the coming days, especially considering its virtually nil correlation to the direction of the US equities markets.

    $FXE - Monthly Basing Action

    As shown on the monthly chart below, $FXE has been in consolidation mode since the beginning of 2013, after stalling out from a rally off the lows at $135.

    The price action over the past 15 months has been bullish, especially the tight range that has formed over the past few months. Take a look:

    (click to enlarge)

    Looking at the current monthly candlestick, notice that $FXE failed to breakout above the monthly downtrend line earlier in the month.

    However, a false breakout is typically a good thing during a bullish consolidation.

    A few false breakouts and shakeouts along the way washes out the weak hands, which creates demand at higher prices because those who sold are forced to buy back in or miss the next move higher.

    $FXE - Multiple Weekly Support Levels

    Zooming in to the shorter-term weekly chart pattern below, we see the price action has pulled back into key support of its 10-week moving average (similar to the 50-day moving average), but still may need another week or two to produce a low-risk buy entry point.

    If the price action fails to hold at the 10-week moving average ("A"), then a touch of the uptrend line ("B") would also be a very low-risk entry because the prior swing lows are likely to hold.

    Depending on how long such a pullback would take to play out, the rising 40-week moving average (orange line) may also end up converging with support of the weekly uptrend line.

    (click to enlarge)

    $FXE - Looking For Entry On The Daily

    Finally, upon drilling down to the daily chart, notice the price is just above the rising 50-day moving average:

    (click to enlarge)

    $FXE - The Buy Setup

    From here, the most ideal entry would consist of an "undercut" of the 50-day moving average, followed by a wide-ranged bullish reversal candle.

    Such an entry point would provide us with an extremely positive reward-risk ratio with a clearly defined stop price.

    However, we do not always have the luxury of the price providing us with the most ideal entry point.

    Nevertheless, even if the best scenario does not play out, we at least want to see some type of bullish reversal candle before buying because it would confirm near-term momentum has returned to the bulls.

    In turn, we would subsequently expect the next move up in $FXE to convincingly break out above the long-term monthly downtrend line.

    As always, subscribing members of The Wagner Daily will be provided with our preset and exact entry, stop, and target prices for this ETF trade setup if/when it meets our specific criteria for buy entry.

    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.

    Mar 28 9:35 AM | Link | Comment!
  • My Analysis & Plan For Trading The Current Stock Market Pullback

    At the close of trading on March 21, our rule-based market timing model shifted from "neutral" to "sell" mode, after previously slipping from "buy" to "neutral" mode on March 12.

    When the timing system first enters into a new "sell" mode, it primarily acts as a "no nonsense," objective way to keep us out of trouble by reminding that new buy entries do not carry positive odds of working in our favor.

    In such a newly-triggered "sell" mode, we seek to increase our cash position, while also selectively shifting our focus towards trading ETFs with a low correlation to the direction of the broad market (commodity, currency, fixed-income, etc).

    As a "sell" signal matures and becomes more confirmed by time and price, short selling of weak stocks also becomes part of the trading plan, but for now it is still too early to enter new short positions for momentum swing trading.

    Static Cling Of The 50-Day Moving Average

    Despite weakening performance in leading stocks and recent broad market distribution (higher volume selling) that sparked the new "sell" signal, it's important to note that both the S&P 500 and Dow Jones Industrial Average are still trading firmly above key, intermediate-term support of their 50-day moving averages.

    On the other hand, the NASDAQ Composite has clearly begun showing relative weakness to the S&P and Dow, but has yet to breakdown below support of its 50-day moving average:

    (click to enlarge)

    On both March 24 and 25 (circled in pink), the NASDAQ "undercut" support of its 50-day moving average on an intraday basis, but still managed to close each trading session above it.

    It's a similar technical picture in the NASDAQ 100 Index (the large-cap brother of the NASDAQ Composite).

    Below is the chart of PowerShares QQQ Trust ($QQQ), a popular ETF proxy for the NASDAQ 100 Index:

    (click to enlarge)

    Since banks, mutual funds, hedge funds, and other institutions frequently utilize program trading to buy pullbacks to the 50-day moving averages, it was not surprising to see buyers stepping in each time the NASDAQ brothers neared that pivotal price level in recent days.

    Biotech Blues

    One of the biggest anchors holding the NASDAQ down over the past week has been heavy selling pressure in the market-leading biotechnology index.

    Between just two recent trading days (March 21 and 24), iShares NASDAQ Biotech Index Fund ($IBB) plunged 10%.

    More concerning is that $IBB sliced through its 50-day moving average with ease, as volume surged higher as well:

    (click to enlarge)

    Because biotech has been one of the strongest industry sectors for many months of the current bull run, it will be important to see how $IBB reacts in the coming weeks.

    While $IBB may be able to manage a short-term bounce from its current level, the technical damage has already been done and $IBB will need at least a few weeks (possibly months) to clean itself up.

    Sector Rotation Keeping The Fire Burning

    While leading stocks in the NASDAQ have broken down, energy and financial related stocks have held ground, allowing the S&P 500 to outperform the NASDAQ lately.

    Large-cap (blue chip) stocks have recently begun leading the stock market, as evidenced by recent breakout action in energy and financial stocks.

    Energy stock Haliburton ($HAL) set a new all-time high within the past two weeks, while Schlumberger ($SLB) is attacking its highs of 2011.

    Even the $IBM dinosaur woke up a few days ago by ripping through major price resistance at $190 on big volume.

    Base On Base Ain't Bad

    A base on base chart pattern occurs when the price action of a recent breakout is unable to extend much beyond the highs of the prior base (former resistance), but also doesn't give up much ground.

    The lows of the new base that forms should hold at or above the highs of the prior base, giving that "base on top of a base" look.

    One example of a possible base on base in the works can be found in the following chart of Bank of America ($BAC).

    At the beginning of the month, $BAC was close to breaking down below its 50-day MA, but has since broken out to a fresh 52-week high.

    Although the breakout hasn't been explosive in terms of extending much beyond the highs of the prior base, $BAC may simply chop around for several weeks, forming a base on base type pattern while the broad market consolidates:

    (click to enlarge)

    Like $BAC, the Financial SPDR ETF ($XLF) also broke out to new highs and stalled out:

    (click to enlarge)

    With $XLF, last Friday's false breakout above the prior swing high suggests the price could be headed for several weeks of chop, which could potentially form another base on base pattern if the ETF holds above its 50-day moving average.

    While it is encouraging that select blue chips are valiantly fighting to push higher with base on base patterns, you still must not forget that the recent pullback in the NASDAQ has forced the top leadership stocks to pull back to support of their 50-day moving averages.

    Leading stocks like $TSLA (we are still holding with an unrealized gain of 48%), $FB (we recently sold for a 49% gain), and $KORS must hold on to their rising 50-day moving averages/10-week moving averages to keep the dominant stock market rally alive.

    Most tech leadership stocks of the NASDAQ have been hit hard over the past several sessions, and will need at least a few weeks of basing action in order to produce low-risk, reliable buy entry points.

    Here's The Plan, Man!

    With our market timing system (click here for an overview) in "sell" mode, our near-term trading plan is to lay low and see how the market responds to recent selling in the coming days.

    If new buy setups develop down the road, we can certainly add some long exposure to our stock and ETF portfolios.

    If, for example, the NASDAQ continues holding above its 50-day moving average over the next one to two weeks, our timing model could easily return to "buy" mode (especially if leading NASDAQ stocks rip higher after testing their 50-day moving averages).

    But for now, there still isn't much to do on the long side without pushing it.

    Conversely, if market conditions continue deteriorating, we will eventually visit the short side of the market.

    Yet, there is no need to rush into short selling right now.

    Patience and discipline is the key to preserving profits in markets that are indecisive and/or in transition.

    Without much effort, anyone can be a rock star in a parabolic bull market!

    But what separates the professionals from amateurs is knowing when to take your foot off the gas pedal.

    Clearly, right now is one of those moments.

    To be instantly alerted when it's time to drop your foot back on that gas pedal by receiving access to our best stock picks and market timing model, subscribe now to The Wagner Daily newsletter.

    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.

    Mar 26 2:03 PM | Link | Comment!
  • How We Brewed Up A 19% Gain In Coffee ETN In Just 6 Days

    The ipath Coffee ETN ($JO) is an interesting exchange-traded product that provides investors with unleveraged exposure in the futures contracts on coffee.

    Last month, we bought and sold $JO in our Wagner Daily newsletter for a solid gain of 19% over just a 6-day holding period.

    In this educational blog post, I walk you step-by-step through the technical setup of that momentum-based swing trade of $JO.

    Fire Up The Percolator

    $JO first made our internal watchlist at the end of January, after rallying to close above the 40-week moving average (similar to the 200-day moving average) on heavier than average volume.

    The weekly volume pattern leading up to the breakout above resistance was bullish, with two strong weeks of accumulation (higher volume gains) in early January. This is important because we always want to see proof of institutional buying before entering a bullish trend reversal setup.

    On the weekly chart of $JO below, note the volume spikes that accompanied the bullish reversal back above the 40-week moving average:

    (click to enlarge)

    Drilling down to the shorter-term daily chart below, notice that $JO followed through to the upside with impressive volume immediately after breaking out above its 200-day moving average. A few days later, the price stalled out and $JO began consolidating for a few days.

    The price consolidation produced two very tight inside days, with volume dropping off considerably. Remember that lighter volume during consolidations is bullish because it indicates the bears are staying away while the bulls are taking a rest:

    (click to enlarge)

    After such a strong rally higher (about 15% in just 3 days), the combination of tight price action and light volume that immediately followed was a very bullish sign that signaled additional upside in $JO once the short-term consolidation was over.

    On the night of February 11, we listed $JO as a potential buy entry in our Wagner Daily newsletter, with an exact buy trigger price just above the high of the two-day consolidation.

    Providing support just below our buy trigger price was the rising 10-day moving average (dotted blue line on the chart above), which was catching up quickly up to the price.

    "Your Coffee Is Ready To Be Served, Sir"

    $JO triggered our buy entry in the next session (February 12), then consolidated the rest of the week while holding above support of its 10-day moving average.

    The following week, $JO opened with a bang, ripping more than 20% higher in just two sessions (February 17 & 18).

    Since our buy entry was on a pullback after the first rally, we were simply looking for a quick, momentum-based pop of 20% to 30%, which would roughly match the percentage gain of the prior wave up.

    When $JO stopped just shy of the $35-$36 resistance level on February 19, we decided to close the position the following day. This enabled us to lock in a profit of nearly 20% over a 6-day holding period.

    Our actual entry and exit prices of the $JO swing trade are shown on the daily chart below:

    (click to enlarge)

    $JO - A Shorter-Term, High Momentum Swing Trade

    In our nightly stock and ETF trading newsletter, the picks we provide subscribers are a combination of core trades and swing trades.

    Core trades are typically "A-rated" individual stocks (and occasionally ETFs). Such equities must already be in a firmly established uptrend, possess a history of massive earnings growth, and provide plenty of liquidity. These are "must own" stocks in the eyes of banks, mutual funds, hedge funds, and other institutions.

    When entering new core trades, our intention is usually to hold the stocks for several months, in anticipation of handsome gains in the 50% to 70% range.

    Conversely, swing trades are generally ETFs and smaller-cap, lesser-known growth stocks that may not be "A-rated." However, our swing trades are usually based on anticipated price momentum from bullish chart patterns, such as "cup and handles" and flat base breakouts.

    On average, we hold momentum-based swing trades for 1 to 3 weeks, while expecting to score quick 20 to 25% price gains during that time period.

    Since most of our educational trade reviews in recent months have been core trades of individual stocks (such as our 2-month hold in $SCTY), I thought it would be helpful to walk you through a clear example of a shorter-term, momentum-based swing trade instead.

    Now you know about $JO.

    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.

    Mar 10 9:23 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.