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Morpheus TradingMajor Market and ETF Trading |
More Bullish Setups
A positive inflation outlook from Fed chief Ben Bernanke sparked a buying spree that led the stock market to solid gains across the board. A revival of interest in the technology sectors helped the Nasdaq Composite zoom 1.2% higher. The S&P 500 and Dow Jones Industrial Average trailed behind with gains of 0.8% and 0.7% respectively. The S&P Midcap 400 rallied 0.7%, but small-cap stocks were decidedly weaker. The Russell 2000 managed a gain of only 0.2%. With the exception of the Russell 2000, each of the major indices closed in the upper third of their intraday ranges.
Volume was firmly higher in both exchanges, enabling both the S&P and Nasdaq to register bullish "accumulation days." In the Nasdaq, total volume was 19% higher than the previous day's level. Volume in the NYSE increased by 5%. In contrast to its recent relative weakness, the Nasdaq was clearly supported by institutional buying yesterday. Firm market internals confirmed the bullishness. Advancing volume in the Nasdaq exceeded declining volume by a margin of 4.7 to 1. The NYSE ratio was positive by 3 to 1.
Over the past several days, we have been bullish on the following ETFs: iShares Transportation (IYT), StreetTRACKS Metals and Mining (XME), StreetTRACKS Gold Trust (GLD), and the Market Vectors Gold Miners (GDX). In yesterday's session, each of these ETFs registered another session of solid gains. If you're long any of them, be sure to keep trailing your stops higher in order to protect profits. But if you're not already long from the proper breakout levels, it may be too risky to chase them for new long entries. Instead, consider two more ETFs that just came onto our radar screen for potential breakout: iShares Software (IGV) and iShares China (FXI).
Two of the strongest sectors yesterday were Semiconductors ($SOX) and Software ($GSO). Although the $SOX rallied 2.1% yesterday, it remains in the middle of a choppy, sloppy range that has lasted more than three months. As such, we are not interested in trading the Semiconductor ETFs. Conversely, the $GSO index has been consolidating at its high in a sideways range. Given that the consolidation has been in effect for four months, the eventual breakout to a new high should be substantial. This bullish consolidation in seen on the weekly chart of IGV, which mirrors the $GSO index:
Reflecting the strength of mainland China's stock market, FXI has been in steep uptrend since June of 2006. After its rally became parabolic at the end of December, it swiftly corrected down to support of its 50-day moving average on January 10. Since then, FXI has settled into a neutral chart formation known as a "symmetrical triangle." The blue lines on the chart below mark the upper and lower channels of the triangle:
As you can see, a "symmetrical triangle" pattern occurs when a stock or ETF trades sideways, but with a series of higher lows that provide support and lower highs that mark resistance. Usually, this pattern forms over a period of 1 to 3 months and eventually leads to a substantial move in one direction or the other. Because it is a neutral pattern, it does not predict the direction of the eventual trend resolution. Rather, it provides astute traders with notice of an impending, tradeable move. The longer the pattern has been developing, the more substantial the eventual breakout above resistance or breakdown below support. In this case, convergence of the 50-day MA (the red line) with the lower channel of the triangle will increase momentum even more. The easiest way to trade this pattern is to simply set alerts on your trading software for both a rally above the upper channel and breakdown below the lower channel. Whichever occurs first, you will be prepared to take advantage of the opportunity to buy or sell short.
Only three days ago, the major indices were starting to look pretty bearish. The Nasdaq was in the process of following through on a "head and shoulders" chart pattern, while the Dow had begun to break below support of its primary uptrend line. But, oh, how quickly things change in the market's current state of indecision. Yesterday's rally enabled both the Dow and S&P Midcap 400 indices to close at new record highs, while the S&P 500 finished at its highest level since September of 2000. The S&P, Dow, and Nasdaq each remain well extended above resistance of their long-term trend channels, while the S&P is trying to grind out its ninth consecutive month of gains. The long-term charts may be "overbought," but it doesn't matter. As we have learned the hard way, being short, even when quality setups present themselves, has not been an easy task. Conversely, buying at current levels requires a willingness to quickly take profits and/or cut losses because recent breakouts in the broad market have gone nowhere. Now more than any time over the past six months, we believe CASH IS KING!
Open ETF positions:
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- It's Not Armageddon. . .
- Basic Materials Sector Forming Short-term Bottom
- Disappointed? Yes. Discouraged? No.
- Stop! Hammer Time!
- Japanese Yen ETF Setting Up For Buy Entry
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Made several great trades today. Traded the QID, QQ [read more]
Today we have the Fed speaking and release of Fed mi [read more]
NOTE: Please click on the charts below to enlarge them [read more]
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