More Industry Sector ETFs Setting Up

NOTE: Please click on the charts below to enlarge them if they do not appear clearly.

The major indices followed up Tuesday's massive rally by finishing near the flat line and with mixed results. After showing early gains, stocks oscillated in a sideways to slightly lower range throughout the day. The Nasdaq Composite slipped 0.1%, the S&P 500 lost 0.2%, and the Dow Jones Industrial Average gave back 0.4%. Small and mid-cap stocks showed relative strength by building on the previous day's gains. The Russell 2000 advanced 0.2% and the S&P Midcap 400 ticked 0.4% higher. The main stock market indexes finished near the middle of their relatively tight intraday ranges.

Total volume in the NYSE declined 11%, as the Nasdaq's turnover came in 3% below the previous day's level. It's positive that lighter volume accompanied a session in which stocks digested their gains. Conversely, increased trading activity would have been a warning sign of bearish "churning" near the highs. In both the NYSE and Nasdaq, advancing volume was nearly on par with declining volume.

In yesterday's commentary, we pointed out the bullish patterns in several international ETFs, as well as the relative strength in the iShares DJ Transportation (IYT). After yesterday's action, a few more bullish patterns emerged in the domestic ETF market. One ETF setting up for a potential breakout is the Retail HOLDR (RTH), which is comprised of household retail names such as Wal-Mart, Home Depot, and Target. On both the daily and weekly chart, RTH is poised to move above key resistance levels. Let's start with the daily chart:

On the chart above, notice that a rally above yesterday's high will represent a breakout above both its 200-day moving average and a key band of horizontal price resistance. More importantly, a move above yesterday's high would also correspond with a breakout above its primary downtrend that has been in place for nine months. This is illustrated on the longer-term weekly chart below. Note that moving averages have been removed so that the trendline can be more easily seen:

If RTH moves firmly above yesterday's high, it will have broken out above pivotal resistance levels on both its daily and weekly charts. Such a rally would provide an ideal buy point. To guard against the possibility of a failed breakout, an initial protective stop could be placed just below yesterday's low.

Solar energy stocks are seeing renewed buying interest, which has caused the alternative energy ETFs to perk up. If institutional money continues flowing into this sector, these ETFs could begin new primary uptrends. The PowerShares Clean Energy (PBW), for instance, just broke out above its prior high and 50-day MA. Despite a small decline in the S&P and Nasdaq yesterday, PBW showed great relative strength by ignoring the broad market and zooming 4% higher. The breakout above the 50-day MA (the teal line) is shown below:

Though less popular than PBW, one should also be aware of the MarketVectors Global Alternative Energy ETF (GEX). It just broke out above its 200-day MA and closed at a new multi-month high. It's showing a bit of bullish divergence to PBW as well. The First Trust Clean Edge (QCLN) is another ticker to keep on your alternative energy radar.

Yesterday's mild pullback in the S&P, Nasdaq, and Dow was no big deal. The major indices gave back very little of the previous day's enormous gains, and they also dipped on declining volume. Due to Tuesday's key technical breakouts, our intermediate-term bias remains bullish. However, it would not be surprising if stocks traded sideways for another day or two before building on their newfound strength.

Open ETF positions:

Long - IYT, INP, EWT, FXI

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 Trade Alerts are also sent via e-mail and/or mobile phone text message 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.

<< My Home | TheMoneyBlogs Home

• Stop! Hammer Time!
• Japanese Yen ETF Setting Up For Buy Entry
• Small And Mid-caps "atching Up" To The Broad-based Weakness
• A Look At The "Big Picture" Monthly Charts
• Fed Bailout Package - Waiting For Round 2

• October 2008
• September 2008
• August 2008
• July 2008
• June 2008
• May 2008
• April 2008
• March 2008
• February 2008
• January 2008
• December 2007
• November 2007
• October 2007
• September 2007
• August 2007
• July 2007
• June 2007
• May 2007
• April 2007
• March 2007
• February 2007

• PowerRate Your Favorite Stock Today!
• Morpheus Trading

• Invest2Success
• Millionaire Now! by Larry Nusbaum
• Land of Black Gold
• Trader X
• Real Estate Marketing Blog
• Morpheus Trading

• Stop! Hammer Time!
• Okay, This Is The Trader Talking...
• Bottom?
• Five Year Money
• Capabilities
• Today's Open: Bounce Up