2 Long Setups

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Morpheus Trading

Major Market and ETF Trading

2 Long Setups

Posted on 02/14/2007 05:53:00 | Link | Post Comment

Stocks snapped a three-day losing streak yesterday, as the major indices posted solid gains across the board. Both the S&P 500 and Dow Jones Industrial Average, fueled by news that aluminum producer Alcoa is being targeted for acquisition, gapped higher on the open, then trended steadily upwards before finishing with gains of 0.8%. Lacking merger and acquisition activity, the Nasdaq Composite showed significant relative weakness. It opened higher, but subsequently moved sideways to lower throughout the rest of the session. One hour before the close, the Nasdaq was unchanged, but an end-of-day bounce enabled the index to close 0.4% higher. The small-cap Russell 2000 advanced 0.8% and the S&P Midcap 400 rallied 0.9%. The Nasdaq finished near the middle of its range, but all the other major indices closed near their intraday highs.

Total volume in the NYSE was 10% higher than the previous day's level, while volume in the Nasdaq increased by less than 1%. The higher volume gain in the NYSE caused the S&P to register a bullish "accumulation day," but one-third of the volume increase was a direct result of Dow component Alcoa's 520% surge in average daily turnover. Volume in the Nasdaq ticked slightly higher, but this was actually negative considering that the index the weak intraday action and the closing price near the middle of its intraday range. Positive market internals, however, helped to confirm the strength. Advancing volume in the NYSE firmly exceeded declining volume by a margin of 3.6 to 1. The Nasdaq ratio was positive by 2 to 1.

Of the major industry sectors we follow on a daily basis, the top-performing one was the CBOE Gold Index ($GOX), which gained 1.9%. For the past three weeks, the index has been consolidating just above its 50 and 200-day moving averages, and now appears poised to break out within the next several days. As illustrated on the $GOX daily chart below, a rally above the February 9 high should enable the index to zoom back up to its prior high from December of 2006:

If the $GOX index breaks out, the ETF that most closely parallels the index is the Market Vectors Gold Miners (GDX). Notice how the ETF has a similar chart pattern to the $GOX index:

The StreetTRACKS Gold Trust (GLD), which mirrors the price of the spot gold commodity, has actually been showing relative strength to the individual gold mining stocks. The gold mining stocks usually move in sync with the price of spot gold, but overall market conditions sometimes lead to a bit of divergence in one direction or the other. Unlike GDX, notice how GLD is already well above its December high:

We have been long GLD since January 23, but we tightened the stop yesterday in order to lock in gains. If GLD drops below its hourly uptrend line, which is basically below yesterday's low, we will close the position and take profits. Over the intermediate-term, GLD has clearly been showing relative strength to GDX. However, GDX rallied 1.3% yesterday, while GLD gained only 0.2%. As such, it is entirely possible that spot gold (GLD) may take a rest while the gold mining stocks (GDX) break out above resistance.

In yesterday morning's Wagner Daily, we illustrated how both the iShares Transportation (IYT) and the StreetTRACKS Metals and Mining (XME) were setting up for potential long entry. As anticipated, a bounce in the broad market enabled both ETFs to break out nicely. With IYT, we mentioned that the ideal entry point was above the upper channel of the "bull flag" formation, while confirmation would come from a rally above the high of February 9. After opening flat, IYT trended steadily higher throughout the day, and actually closed at a fresh all-time high:

XME also broke out above its hourly downtrend line, but closed just shy of its high. If the broad market retains yesterday's gains, there's a good chance that XME will move to a new high today:

We brought IYT and XME to your attention yesterday so that advanced short-term traders could take advantage of the momentum. However, we did not "officially" enter these positions due to the stock market's recent distribution. When one or two sectors are showing relative strength in the face of an indecisive overall stock market, it often requires rapid entries and exits in order to prevent getting chopped up. With "official" ETF trade entries, we usually focus on those that are expected to have "longer-term" time horizons of one to three weeks.

Open ETF positions:

Long GLD, QID, and DXD (regular subscribers to The Wagner Daily receive detailed stop and target prices on open positions and detailed setup information on new ETF trade entry prices. Intraday e-mail alerts are also sent as needed.)

1 Comments:

: fxyq vlsnh jopazg xboznht osywepg dfijhx flmputzkr; posted by doru spjbozg @ 03/03/2007 03:19AM

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