| Search by tag or site | Login to my blog ? Start my own blog |
 |
Morpheus TradingMajor Market and ETF Trading |
Watch The "wedges"
The broad market wrapped up last week on an indecisive note, as the major indices gapped lower on the open, drifted slightly lower in the morning, then reversed much of their losses into the close. The S&P 500 eked out a gain of 0.1%, but the rest of the main stock market indexes finished modestly lower. The Nasdaq Composite lost 0.5%, as both the Dow Jones Industrial Average and S&P Midcap 400 Index slipped 0.2%. The small-cap Russell 2000 was off by 0.5%. The S&P 500 settled at its intraday high, while the rest of the major indices closed in the upper third of their intraday ranges.
Turnover was mixed in last Friday's monthly options expiration day. Total volume in the NYSE increased 5% above the previous day's level. Trading in the Nasdaq decreased 10%. The S&P 500's gain on higher volume was positive, but an advance of just 0.1% doesn't quite qualify as a bullish "accumulation day." In the Nasdaq, declining volume exceeded advancing volume by a margin of 2 to 1. The NYSE adv/dec volume ratio was flat.
Going into this week, be prepared for volatility in either direction because the broad market is essentially in "no man's land." On a near-term basis, it's bullish that the S&P 500 has formed a "higher low" above the January lows. However, a "lower high" may also have formed from the February 1 highs. This means that a "wedge" chart pattern has formed on daily charts of most of the major indices. This is illustrated on the daily chart of the S&P 500 SPDR (SPY), a popular ETF proxy for the S&P 500 Index:
The point of a "wedge" pattern is simply to be aware that a powerful move in either direction will soon take place. The longer the "wedge" forms, the more volatility in the market contracts. The greater the volatility contraction, the greater the subsequent volatility expansion. When a "wedge" pattern has formed, one looks for an eventual move above the upper channel or below the lower channel. Typically, the pattern resolves itself in the direction of the dominant trend. Stocks have been in a primary downtrend since October of 2007, so the odds favor a resolution to the downside and a test of the January lows in the near future. Nevertheless, don't be surprised if the S&P 500 spikes above the upper channel of its "wedge" for a few days, squeezes all the shorts, then fails the upside breakout. Further, remember that the 20-day exponential moving averages have also been acting as resistance for the past month.
In the pre-market, both the S&P and Nasdaq futures are positioned for substantial upside opening gaps. Poised to open more than 1% higher, both the S&P and Nasdaq will likely test resistance of last week's highs this morning. If stocks move above last week's highs and hold for at least the first thirty minutes, it will set a rather bullish tone for the broad market. The next major test of resistance for the broad-based indexes would be the February 1 highs. With the "wedge" patterns and pivotal areas of near-term support/resistance in play, we plan to lay low with new trade entries until the market clearly shows its hand for the direction of its next major move. When that happens, likely within the next few days, we'll take an updated look at which industries or specialty ETFs are showing the most relative strength or weakness to the broad market.
Open ETF positions:
Long - UNG, SDS, SKF
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.
- Basic Materials Setting Up For Another Leg Down
- Patience Paying Off
- Short-term Charts Choppy? Try The Weekly Charts.
- Waiting For The Real Direction Of The Market
- A Choppy, Sloppy Mess
- 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
NOTE: Please click on the charts below to enlarge them [read more]
NOTE: Please click on the charts below to enlarge them if [read more]
NOTE: Please click on the charts below to enlarge them [read more]
<< My Home | TheMoneyBlogs Home