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Morpheus TradingMajor Market and ETF Trading |
India ETF Poised For Further Gains
Each of the major indices bounced to recover about half of the previous day's losses, but lower overall volume undermined the reversal attempt. After a relatively flat open, stocks trended higher throughout most of the day before dipping lower at 2:00 pm ET. Buying pressure in the final hour lifted the major indices back to their intraday highs, which is where they settled. Both the S&P 500 and Dow Jones Industrial Average rallied 0.6%, while the Nasdaq Composite gained 0.5%. The small-cap Russell 2000 and S&P Midcap 400 indices were higher by 0.3% and 0.5% respectively.
Turnover declined across the board. Total volume in the NYSE was 7% below the previous day's level, while volume in the Nasdaq decreased by 8%. Stocks have closed higher in six of the past seven sessions, but volume has receded in each of the six "up" days. Conversely, the sole "down" day coincided with a sharp increase in turnover. Lighter volume "up" days and heavier volume "down" days is the exact opposite action a healthy market should display, as it indicates a lack of institutional buying support. Since mutual funds, hedge funds, pension funds, and other institutions are responsible for approximately 70% of the stock market's average daily volume, monitoring the daily relationship between the broad market's price and volume is a great way to know what is happening "under the hood." Still, despite the recent lack of institutional accumulation, "distribution days" of higher volume selling have been sparse. Although institutions may be taking a break from aggressively buying stocks, they don't seem particularly interested in dumping shares either. The divergent chart patterns between the S&P and Nasdaq may be prompting many traders to stand on the sidelines with a "wait and see" approach.
In our July 9 commentary, we pointed out the breakout in the Market Vectors Gold Miners ETF (GDX). The following day, we explained how a pullback to the secondary and primary uptrend lines on the hourly chart can be used for gauging a potential entry point. Later that day, we bought an initial position in GDX when it touched support of its secondary uptrend line. GDX subsequently drifted a bit lower yesterday, but is still above its primary hourly uptrend line, which is currently at the 40.10 area. As GDX showed strength into the final hour of yesterday's trading, it may be poised to resume the upward motion of the July 6 breakout. On the daily chart, notice the formation of the "bull flag" chart pattern. We have illustrated this below:
We're already long GDX, but one might consider buying it above the upper channel of its "flag" if still looking for an entry point. Current positions could be added to on a breakout above the high of the flag formation.
On the international front, China has been getting all the attention lately. However, don't forget about another fast-growing economy in Asia known as India. Over the years, the Chinese and Indian stock markets have taken turns outperforming each other. Lately, China has been on fire, while India has ascended at a slower rate. Based on chart patterns of numerous Indian ADRs we have analyzed, we believe that is about to change. Because of this, we are now stalking the iPath Barclay India Index (INP) for a potential buy. Looking at the daily chart below, notice how INP broke out above its prior high last week, then pulled back on July 10. Yet, it remains squarely above the lower channel support of its primary uptrending channel shown below:
When INP pulled back two days ago, it's bullish that it held above support of its prior high from June 1. Yesterday, it quickly moved back towards the high of the previous day's range. Now that the breakout level has been successfully tested, we plan to buy INP on a breakout above its two-day high. Regular subscribers to The Wagner Daily should note our trigger, stop, and target prices below.
Nothing has really changed in the broad markets. We still have the mixed technical picture of the Nasdaq holding near its six-year high, while the S&P and Dow remain stuck below their prior highs, struggling to stay above their 50-day moving averages. Until one of these indexes wins the tug-of-war between the bulls and bears, trading is likely to remain choppy and erratic. To avoid numerous stop outs and churning your account, the usual rules apply. First, consider reducing your share size, and thus your risk exposure, on all new trade entries. Second, hedge yourself on both sides of the market by simultaneously being long the sectors with relative strength (semis, internets, oil) and short those with relative weakness (broker-dealers, financials, utilities, and now retail). With the exception of QQQQ, most of the broad-based ETFs such as SPY and DIA are presently choppy and should be avoided on both the long and short side. Finally, look for trades that are not directly correlated to the direction of the U.S. markets. Commodity and currency-based ETFs, as well as the numerous international ETFs, are great ways to do so.
Open ETF positions:
Long - GDX, FXC
Short - (none)
NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday e-mail alerts are also sent on as-needed basis.
Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world. Wagner is currently working on this third book, scheduled for publication in early 2008.
For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com .
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NOTE: Please click on the charts below to enlarge them if [read more]
NOTE: Please click on the charts below to enlarge them if [read more]
Market Needs to Show Volume and Breadth To Signal Next M [read more]
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