A swing trader with daily ideas...

[morpheustrading]

Two "short ETFs" on my watchlist for potential swing trade entry today

Over the past four days, we have been tracking the inversely correlated ProShares UltraShort Oil and Gas ETF ($DUG) for a possible long entry on pullback into the 20-day and 200-day moving averages. Yesterday, DUG formed the reversal candle we were looking for, as a possible pivot for a buy entry. As a result, we have now placed DUG on today's watchlist for potential swing trade entry. Note that if DUG triggers our buy entry price, it will be entered as a very short-term trade (2 to 5 days) because inverse and leveraged ETFs underperform their underlying indexes as the holding time increases. The daily chart below illustrates the "undercut" with reversal bar we were anticipating:

Yesterday, on a spike in volume, the Direxion Financial Bear 3x ETF ($FAZ) formed a bullish reversal candle. After undercutting support of its 20-day EMA, FAZ rallied sharply and closed at session highs. FAZ now offers a potential long entry just above yesterday's high of $26.99. We are also placing this inversely correlated "short ETF" on today's watchlist as well:

Several days ago, we exited and took profits on our remaining short positions because the main stock market indexes had finally undercut their 200-day moving averages and formed reversal candles (as we anticipated and discussed in our June 4 ETF commmentary earlier in this thread). With the undercut and reversal candles in place, the odds favored that we would see a bounce in the broad market. Consequently, we suggested patience by sitting in a cash position as the broad markt bounced and to wait for new ETF and stock trade setups to develop. Yesterday, all of the major indices put in reversal candles and there are now a plethora of potential short entry setups in the market. As we've often discussed in the past, it's important to wait for proper technical trading setups to develop; otherwise there is a high likelihood of overtrading and churning one's trading account. This is where the short-term element of our market timing system keeps us out of trouble by being on the right side of the market, or at times being fully in cash.

 

[morpheustrading]

Stock market timing model shifts to new "buy" signal

Hey everyone. Just returned from a short vacation, which is why I didn't post all last week (for anyone follows me and cares). Anyway, our stock market timing model has just shifted to a new "buy" signal. Commentary below summarizes this...

Stocks put in a good showing last Friday as volume increased. The Nasdaq Composite led all indices as it tacked on a solid 1.3%. The small-cap Russell 2000 added 1.2%, while both the S&P 500 and the S&P MidCap 400 posted gains of 1.0%. The Dow Jones Industrial Average lagged slightly, ending the day up 0.9%.

Market internals remained bullish for a second consecutive session. As might be expected on a monthly options expiration day, turnover increased significantly. On the Nasdaq, volume surged 21.0%. NYSE turnover ticked 17.3% higher. Advancing volume also held the upper hand, as it topped declining volume on the Nasdaq by a factor of 4.8 to 1 and on NYSE by a factor of 4.3 to 1. Institutions were clearly involved in Friday's price action. This resulted in both an "accumulation day" and a "follow-through day" on both exchanges.

Among other factors, last Friday's heavy volume "accumulation day" in the Nasdaq, indicative of buying amongst mutual funds, hedge funds, banks, and other institutions, caused our disciplined, rule-based market timing model to shift from an intermediate-term "sell" to "buy" signal (there are four different modes of this market timing model). There was also big volume in the S&P 500, which helped to confirm the strong action in the Nasdaq. Nevertheless, it is important to note our new "buy" signal is not yet confirmed, as we still need to more confirmation in the form of leading stocks breaking out to new highs and holding. We should also see a significant pick up in the number of stocks hitting new 52-week highs versus stocks falling to new 52-week lows.

One might reasonably argue that much of last Friday's volume spike was due to options expiration (and not real buying interest), and that could be true. Still, that doesn't play a big part in our decision making because we always start off with reduced position sizing when we shift in to a new buy mode. This enables to start with reduced capital risk, which we gradually increase as more price and volume confirmation is received. If anything, the main point of concern we have with the current buy signal is that the major averages (S&P 500, Nasdaq, and Dow) are still trading below their 50-day moving averages. However, that could easily change with just one or two days of sharp upward price action in the broad market.

 

[morpheustrading]

Current support and resistance levels on the Nasdaq and S&P 500 ($QQQ, $SPY)

Although we now have a new "buy" signal in place with our market timing model, each of the main stock market indexes must now contend with key resistance of their 50-day moving averages (50-day MA). This suggests that stocks may either pullback from or consolidate at current levels over the next several sessions. As such, let's take a look at the current technical support and resistance levels for two popular benchmark indexes, the Nasdaq Composite ($COMPQ) and S&P 500 Index ($SPX).

On a burst of volume, the Nasdaq closed above its 50-day MA yesterday, so this prior level of resistance should now offer new support. One of the most basic tenets of technical analysis is that a prior level of resistance becomes the new level of support after the resistance is broken (and vice versa). Nevertheless, it is not unusual for a stock, index or ETF to pull back from its first attempt to crack through a major moving average following a significant move lower.

If the Nasdaq holds above its 50-day MA, its next significant resistance level is near the 2,980 area. If the index eventually retraces from its current level, it will probably first retest and find resistance at yesterday's high before moving lower. Above this mark, the Nasdaq has significant overhead resistance near 2,980 and 3,085. Yesterday's (June 19) intraday low, the 20-day exponential moving average (20-day EMA), and the 200-day moving average (200-day MA) should all act as important support levels for the Nasdaq. Using supplemental Fibonacci retracement levels, the daily chart of the Nasdaq Composite below clearly summarizes all this:

The S&P 500 Index also surged above its 50-day MA yesterday, and on higher volume. Yesterday's high (1,363), as well as the 1,380 and 1,420 levels all present near to intermediate-term resistance levels for the S&P. As with the Nasdaq, the 50-day, 20-day and 200-day moving averages are significant support levels on the S&P 500:

With the stock market in "buy" mode, we will be focusing most of our attention on identifying potential ETF and stock setups to buy during market pull backs. It would now take several significant "distribution days" (higher volume selling) to nullify recent bullish price action on the long side of the market. However, keep in mind that the first move higher following a substantial market correction does not generally yield stellar results because new leadership in the stock market is just becoming established. Most important is that we continue to see institutional accumulation during pullbacks, and as the stock market works its way higher.

 

[morpheustrading]

Potential swing trade entry in ProShares UltraShort MSCI Emerging Markets ETF ($EEV)

Last Friday, the ProShares UltraShort MSCI Emerging Markets ETF ($EEV) consolidated near the high of the previous day's powerful downward move. EEV may now provide a buying opportunity if it continues to consolidate near the two-day high and forms a pivot, such as a bullish pennant. We will be monitoring this inverse ETF closely for a potential swing trade buy entry:

At the opening bell of last Friday's session, we sold our position in iShares Nasdaq Biotech ($IBB) for a modest gain. Following its big run up on Thursday, PowerShares U.S. Dollar Bull Index ($UUP) spent the session consolidating above its 20-day EMA and appears likely to continue its move higher this week. We remain positioned long, and appreciate that the ETF has a low correlation to the direction of the main stock market indexes.

Both our ETF watchlist candidates from last Friday, UltraShort China 25 Index ($FXP) & UltraShort MidCap ProShares ($MZZ), triggered for entry, so we are now long both inversely correlated ETFs.

Overall, last Friday's price and volume action, although somewhat suspect, still added confusion to a market that is trying to establish a direction. Tread carefully through the current market landmine.

 

[morpheustrading]

Stocks stage impressive bullish reversal, while key resistance remains ($SPY, $QQQ)

Stocks reversed dramatically in the final hour of trading yesterday, ending the session mixed. All the major indices were down 1.2% or more intraday before the market staged its impressive comeback. The S&P MidCap 400 showed relative strength, as it fought its way back from early losses to post a 0.3% gain. The small-cap Russell 2000 ended the session flat, while both the Dow Jones Industrial Average and S&P 500 settled with modest 0.2% declines. The Nasdaq Composite also made an impressive recovery, but still finished the lower by 0.9%. At its lowest point of the session, the tech-rich index was down by 2.0%. Trade was also brisk, indicating the presence of institutional trading activity.

A quick technical analysis review of the S&P 500 and Nasdaq Composite should provide a compelling visual as to the strength of yesterday's reversal.

In the first half of the trading session, the S&P 500 quickly lost support of its 20-day exponential moving average (EMA) yesterday, and appeared ready to test key near-term support of its four-day low. However, after setting the intraday low near the 2:30 pm reversal period, the S&P rallied in the final hour of trading to close near the day's high. This formed a bullish "reversal bar" candlestick on the daily chart, but with little relevance given the choppy, indecisive trading range of late. From here, the next near-term resistance levels for the index will be found at the two-day high of 1,334, followed by resistance of the 50-day moving average (MA) at the 1,340 area and June "swing high" around 1,364.

The Nasdaq Composite also recovered strongly yesterday. Initially, the Nasdaq appeared to be in big trouble when it fell through key support of its four-day low. However, the tech-rich index also turned tail to close near session highs. The Nasdaq should now find resistance at its 20-day EMA (the 2,862 area), the two-day high (2,882), and 50-day EMA (2,897) and the June 20th "swing high" of 2,942.

As the charts above illustrate, both the Nasdaq and the S&P 500 still face formidable overhead resistance and price supply to contend with. Nevertheless, yesterday's price action suggests to us that market bears may be on the verge of ceding control…at least for a while. Overall, recent weeks can be summarized as a tug-of-war between the bull bears, with neither team showing convincing dominance. Obviously, this has made it challenging to allow solid technical swing trade setups to follow through in either direction for more than a day or two. Nevertheless, we have been riding the volatility pretty well, eeking out small profits on both sides of the market, while keeping a primary focus on capital preservation. We simply must take what the market gives us...and lately, that hasn't been much (at least for technical swing traders). Although the timing model is on a sell signal we are simply one "follow through-day" away from generating a buy signal. With this in mind, we are willing to establish a few long positions with reduced share size, risking about $200 per trade (based on our $50,000 model trading account).

 

[morpheustrading]

Two ETF buy setups on our radar screen ($FXH, $ITB)

Over the past five sessions, First Trust Health Care AlphaDEX ETF ($FXH) has rallied into resistance near its previous swing high of $31.45 (see dashed horizontal line on chart below). Over the past two sessions, FXH has shown signs of pulling back from this key mark. As such, FXH now offers a possible buying opportunity under two scenarios within the next few days. The first would be a pullback buy entry into support of the 20-day exponential moving average (EMA) and the uptrend line (ascending black line). An alternative entry could develop if FXH consolidates just below resistance over the next 5 to 10 days, and then breaks out above the horizontal price resistance around $31.45. Under either circumstance, we would only enter a long position in this ETF if it provides an appropriate technical "setup." Typically, we will look to enter above the high of a "reversal candle," much like the one formed on June 18th (annotated below). Given the relative strength exhibited by this ETF (it's near a 52-week high), we will continue to monitor it closely for a possible buy entry:

During the market's recent move higher, the homebuilder sector has shown significant strength, as it has led the advance by rallying to fresh 52-week highs. By extension, the iShares Dow Jones U.S. Home Construction ETF ($ITB) now offers a potential buying opportunity on a pullback to support of its 10-day and 20-day moving averages. As with FXH, we will only look to enter a position in ITB if it presents a setup that meets our trading criteria. Jumping the gun by buying stocks or ETFs before technical analysis provides us with our predetermined entry price is never recommended:

If either ETF above meets our technical criteria for entry, we will list our preset entry and exit prices for each setup in our newsletter.

 

[morpheustrading]

Technical support & resistance levels in Nasdaq and S&P 500 ($QQQ, $SPY)

Since the stock market appears to be in consolidation mode right now (trading in a sideways range on lighter volume), it is a good time to do a review key technical support and resistance levels in the Nasdaq and S&P 500 indices. Doing so will enable you to be prepared with an action plan for your trading operations when the major indices make their next move.

The following daily chart of Powershares Nasdaq Trust ($QQQ), as an ETF proxy for the Nasdaq 100 Index, shows that the price action in this ETF has been contained by a relatively tight ascending trend channel (annotated by the red lines) since forming its "swing low" support level on June 4. Trend channels such as these provide an excellent gauge for determining support and resistance levels. In this case, the trend channel suggests QQQ should find support near-term support around the $62.40 area and its next near-term resistance near $66.00. Other significant support levels include the convergence of the 20-day and 50-day moving averages ($63.30 - $63.50), the 200-day moving average ($60.92), the June 28th swing low ($61.54) and the June 4th swing low ($60.04).

The SPDR S&P 500 ($SPY) has also formed an ascending trend channel similar to QQQ. The next important resistance levels on SPY are the July 3rd swing high ($37.51) and the upper trend line of the trend channel (see the red "up" arrow near $139.00). Key support levels for SPY include the convergence of the 20 and 50 day moving averages ($134.00 to $134.40), the lower trend channel line near $133.20, the June 25th swing low ($130.85), the 200-day MA ($130.52) and the June 4th swing low of $127.14.

As evidenced by the daily charts of QQQ and SPY above, both of these ETFs, and by extension the broad market, have a considerable number of both near-term support and resistance levels. This suggests that stocks could remain in a trading range throughout the summer, which is*seasonally not unusual. With much of Wall Street not working and enjoying summer vacation with their families, there is likely to remain an absence of big volume in the near-term. With a lack of solid turnover, it will probably be difficult for the broad market to make a significant, convincing move in either direction. As such, we wouldn't be surprised to see a lack of significant movement in the broad market during the low volume summer doldrums. Be careful to avoid overtrading in the current environment; there will be plenty of time for profiting from swing trading ETFs and stocks when volume (and hence conviction) eventually returns to the market. Above all, don't forget that cash is always a valid position.

 

[morpheustrading]

Importance of controlling risk in choppy stock market

When the stock market is in a strong, multi-month rally, it usually takes five or more "distribution days" (broad-based losses on higher volume) to end the momentum of the uptrend. However, when the main stock market indexes have only recently registered a fresh "buy" signal off the lows, just one or two days of higher volume selling ("distribution") within one week of the new buy signal is all that is needed to kill the attempted rally. With yesterday's (July 10) heavy volume selling, the Nasdaq Composite has already printed two "distribution days" since its recent buy signal, thereby forcing our disciplined, rule-based market timing model back in to "sell" mode.

Obviously, we would have preferred stocks and ETFs to have surged higher over the past few weeks, but there are some incredibly important lessons to be learned when a rally attempt fails.

New traders and subscribers of our swing trading newsletter should focus on how we leg in and out of the market with both buy and sell signals when they are so close together in time. Although we can not change the price action of the stock market, one thing we can definitely control is risk. The manner in which we carefully manage swing trade positions in a tricky, indecisive market is TEN TIMES more valuable to new traders/subscribers than how we manage a winning trade in a bull market. Put another way, everyone is a genius in a bull market because one can just throw a dart and probably make a hit. But the way swing trades are managed in a challenging, choppy markets such as the current environment always determines whether one holds on to previously earned stock market profits or gives it all back due to churning the trading account.

A trader must continually be digesting market action and be willing to go with the flow -- doing nothing and staying in "hope mode" with trades not working out is never the answer. The key to our consistent, long-term profitability has always been to lose only a little when wrong, so that we avoid digging too big of a hole, which ensures we are mentally in good shape to catch the next big rally. Lately, there has been very little reward for the risk of being long. As such, we feel it's best to be positioned primarily in cash while waiting for the market to make up its mind and settle into a new trend in either direction.

 

[Galactic25]

My opinion

I think that all these charts are very interesting. You put certain entries/exits on the charts and support and resistance, but even w/ your explanations of what you're seeing, it's hard to see any one method of why certain entries and exits work. It looks like you're studying a lot of the Indexes and ETF's. Are you trading the eminis or are you basing your stock trading decision off of what you're seeing in the indexes? I see some ETF's you're trading like FAZ. You point out volume activity, and you have an opinion of what that volume means, but I wonder how you relate that to your entries and exits. It's just difficult from an outside perspective to see how you view these charts w/o a full understanding of what you're thinking, and how you make money from what you're seeing, or what your win/loss ratio is. An example is, what are you thinking when you see a stock/ETF/Index at the 50 MA? I'm a professional swing trader and I created a website telling about what I do as a trader.

http://proswingtradertim.webs.com

 

[morpheustrading]

Re: My opinion

I think that all these charts are very interesting. You put certain entries/exits on the charts and support and resistance, but even w/ your explanations of what you're seeing, it's hard to see any one method of why certain entries and exits work. It looks like you're studying a lot of the Indexes and ETF's. Are you trading the eminis or are you basing your stock trading decision off of what you're seeing in the indexes? I see some ETF's you're trading like FAZ. You point out volume activity, and you have an opinion of what that volume means, but I wonder how you relate that to your entries and exits. It's just difficult from an outside perspective to see how you view these charts w/o a full understanding of what you're thinking, and how you make money from what you're seeing, or what your win/loss ratio is. An example is, what are you thinking when you see a stock/ETF/Index at the 50 MA? I'm a professional swing trader and I created a website telling about what I do as a trader.

http://proswingtradertim.webs.com

Actually, what you see is part of a very complete swing trading strategy I have been using for the past 11 years. All the things you asked about, such as win/loss ratio, details of the trading strategy, and more are listed on my website. However, I follow forum rules by not posting promotional links directly to my website.

 

[morpheustrading]

Analysis of a winning swing trade (8% gain on a 2-day hold)

I frequently do educational reviews of actual stock or ETF swing trades taken in our newsletter, so that traders may continually learn the details behind the stock trading strategy we have been consistently and profitably using for years. Today, we analyze the technical setup and subsequent result of a profitable breakout swing trade in InterOil Corporation ($IOC).

When scanning thousands of stocks and ETFs for equities that meet our disciplined, rule-based criteria for potential trade entry every night, the first thing we do is look at the longer-term weekly charts, which gives us a "big picture" snapshot of the overall trend of the stock or ETF. For the "breakout" entry, one of our prerequisites is a tight pattern of consolidation ("basing pattern") near its recent highs. As you can see on the weekly chart of IOC below, the stock had been forming a tight base near its highs for nearly four weeks:

With a tight pattern on the weekly chart meeting our criteria, we then dropped down to the shorter-term daily chart interval, in order to locate a potential low-risk buy entry point within the valid basing pattern on the weekly chart. When buying breakouts (just one of the three types of technical swing trading buy setups we enter), we prefer to do so with stocks and ETFs that are consolidating near their 52-week highs and have been trading in a tight range over the past three to six weeks (or longer). As the daily chart below illustrates, the price action of IOC was holding above its 20-day exponential moving average (the beige line), in a narrow range, for the preceding three weeks. Therefore, we had a valid technical pattern in place, and the trigger for potential buy entry was determined to be a rally above near-term resistance of the 4-day high. Subscribers were alerted with our predetermined, exact entry and exit prices for this potential breakout entry in IOC on the evening of July 12:

IOC triggered our buy entry above its four-day high (blue horizontal line above) the following day, and followed through nicely to the upside that morning before pulling back in the afternoon. With a pre-entry price target of $77.40, we held on to IOC in hopes of achieving a 2 to 1 reward to risk ratio on the trade (potential gain based on the target being at least double the potential loss based on the preset stop price).

In the very next trading session (July 16), IOC opened much higher and held on throughout the day, pushing to a greater gain throughout the afternoon and reaching our original price target of $77.40, enabling us to lock in a quick 8% gain on just a 2-day holding period. The final chart below shows the price action subsequent to our swing trade entry point:

Typically, our average holding time for most short-term stock and ETF trades is about 1 to 3 weeks (not days). However, sometimes the trade works in our favor by hitting our price target much faster than expected, in which case we simply take the quick profit and run.

For those who are new to my stock trading strategy, you will eventually see more trades like this when our market timing model eventually shifts back to "confirmed buy" mode. If you have only been following this thread within the past month or two, you have only seen us operate primarily in "capital preservation mode," where we enter all new trades with both reduced share size and tight stops. When market conditions are choppy and indecisive, very few stocks and ETFs follow-through in either direction of the market. As such, we prefer to lay low and play solid defense during these periods, holding on to well-earned profits from the easier periods in the market. Overall, there is no point in taking on heavy capital exposure when risk is high and the reward is low. When conditions are in our favor, we confidently get aggressive with our share size and exposure with the expectation of maximizing profits while the market is in a steadily trending mode. But until that happens, there is no sense in churning one's brokerage account just for the sake of being active in the market. Patient, disciplined traders will always be rewarded the most.

 

[morpheustrading]

Nasdaq and S&P 500 poised to break down below major support levels ($QQQ, $SPY, $DIA)

The benchmark S&P 500 Index closed right at the edge of two key technical support levels yesterday, and a breakdown below that pivotal convergence of support levels in today’s session could easily lead to a sharp move lower in the near-term. Given the immediately negative reaction to earnings of Apple ($AAPL), which was trading 6% lower in yesterday’s after hours trading, leading stocks, ETFs, and the main stock market indexes could now be on the verge of finally moving out of the choppy, erratic range of the past several weeks, albeit entering into a new intermediate-term downtrend. So, let’s take a closer look at the daily chart patterns of the Nasdaq 100 Index ETF ($QQQ) and S&P 500 SPDR ($SPY), two popular ETF proxies for the broad market.

After three consecutive days of selling, several of the broad-based ETFs are now at the lower trend lines of their near-term ascending trend channels we originally discussed in the July 10th issue of my newsletter and here on this thread. On that day, I stated that, “the price action (in both QQQ & SPY) has been contained by a tight trend channel since the June 4th swing lows (see red lines in chart below). I further commented that “trend channels provide an excellent gauge for determining support and resistance levels.” Since that time, both QQQ and SPY have continued to find resistance near the upper level resistance of their respective ascending trend channels, and support near the bottom of their trend channel. Below is a review of the two charts I originally posted in that day’s (July 10) ETF trading commentary:

Fast forwarding to the present, check out the current chart of QQQ below:

On the chart above, notice that in yesterday’s (July 24) session, QQQ tested and held support of both its 50-day MA (the teal line) and the lower trendline (the ascending red line). The convergence of a key moving average and trend line is typically quite significant support. However, if QQQ now breaks below its low of the past two days, its next significant support levels are the 200-day MA ($61.50 area) and the June 4th swing low (around $60.00). Conversely, even if QQQ happens to bounce today (we must always be prepared for unlikely scenarios), it should find major resistance at its intermediate-term downtrend line (the descending blue line near $64.50), as well as the July 19th high of $65.31.

Although it has been showing slightly more relative strength than QQQ, the main ETF for the S&P 500 Index (SPY) has been exhibiting similar price action to the tech-rich Nasdaq index. In yesterday’s session, notice that SPY also “undercut” its 50-day MA, as well as support of its lower trend channel (the ascending red line), before closing to regain support of these key marks. If there is further decline in today’s session, SPY has a minor support level at the July 12th swing low of $132.60. Further below, the next major support is between $131.70 and $130.85 (200-day MA and the June 25th swing low). Below these levels, the June 4th low, all the way down at $127.14, is the next critical level of support. All significant resistance levels for SPY are highlighted in light blue. The chart below summarizes these key levels to monitor in the coming days:

As of this writing, the Nasdaq futures are trading about 1% lower in pre-market trading. Given the after-hours plunge in AAPL, it appears likely that the market will gap down at today’s open. If it does, a sudden breakdown below key support levels, such as convergence of the trend channels and 50-day MAs, could lead to a rapid decline in the near-term. Although the broad market still has several key support levels just below (as of yesterday’s close), overall technical market conditions continue to erode. If leadership stocks like AAPL continue to take a beating and are unable to quickly recover, the June 4th lows of the main stock market indexes could soon be re-tested. It is also worthy of remembering that markets generally fall much faster than they rise because fear is a stronger emotion than greed.

Although it appears likely that stocks may be headed for substantial downward momentum in the near-term, we are prepared either way. My market timing system keeps me out of trouble during challenging market conditions, while enabling me to profit in trending markets, regardless of the direction of the trend.

 

[morpheustrading]

My market timing model switches from "buy" to "neutral"

Even though the benchmark S&P 500 Index has been outperforming the other averages lately, Wednesday’s (August 1) heavy selling was the second day in a row of institutional distribution (higher volume losses). Two days of distribution so close to a bullish follow-through day is usually bad news for the bulls. As such, because of the mixed signals, my rule-based market timing model has just switched to “neutral.” This occurs when the broad market is attempting to form a bottom and we receive a buy signal that doesn’t follow through (false buy signal). Rather than switching back to “sell” mode, we adjust the model to “neutral.” In this mode, I can either go long or short; however, our position size on all positions is light because market conditions are not ideal.

My current near-term plan is to continue to lay low, just as I have done the past few weeks, patiently waiting for conditions to improve while protecting our capital (cash is king). Despite the challenging and erratic market conditions, I still netted a small profit in July. While certainly not a killer month, I felt the small gain was pretty good, especially considering how unbelievably choppy the market has been.

Perhaps most importantly, swing traders and short-term invetors who have been disciplined enough to follow my swing trading strategy and comments here in recent weeks should be in good shape mentally. Along with capital preservation, staying mentally sound is always a main concern when trading in a tough market. Unfortunately, many traders have undoubtedly overtraded like crazy in recent few months and are now in a big hole. Many newer traders enter trades just for the “rush,” and have a hard time sitting in cash or trading with reduced share size. But I know from more than 10 years of short-term trading experience that knowing when not to trade may be the hardest skill of all to learn (and carry out) in the stock market.

 

[halliadam]

Swing Trading newsletters for stocks and ETF's. Swing Trading strategies and techniques for the short term trader and active investor.



thanks for sharing.

 

[morpheustrading]

Not a good idea to spam the forum with keywords and leave your website as a signature. I have a commercial site too, but try very hard to follow the strict forum rules.



Deron

Swing Trading newsletters for stocks and ETF's. Swing Trading strategies and techniques for the short term trader and active investor.



thanks for sharing.

 

[morpheustrading]

iShares Mexico ETF ($EWW) poised for breakout to all-time high

With the U.S. markets rather lethargic and showing a lack of conviction, we have been scanning for potential trade setups among the international ETFs. Most of the international ETFs we looked at have badly damaged weekly chart patterns that we are not interested in trading because it goes against our core swing trading methodology. But one international ETF in a nice consolidation pattern, poised for a breakout to a new record high is iShares Mexico ($EWW). On the long-term monthly chart below, which shows you the "big picture" of its trend, notice that EWW is presently testing resistance of its all-time high. If it breaks out above the horizontal line annotated on the chart, there will be a complete lack of overhead supply and price resistance that should enable EWW to zoom higher:

Drilling down to the shorter-term daily chart pattern on the following chart, notice that EWW has been forming a valid base of consolidation near its high for the past four to five weeks. The daily trading range is also tightening up, which is positive, while the 20-day exponential moving average (EMA) is rising to provide support. Finally, volume has also been lighter than average during the consolidation:

As the daily chart shows, a rally above the $63.85 level would correspond to a breakout above its recent highs, which converge with resistance of its April 2012 high. Although resistance of its all-time high (shown in the first chart) is actually about one point higher, we would be comfortable with buying a breakout just above the $63.85 level because momentum from such a breakout would likely cause EWW to surge through that price resistance from years ago. Alternatively, one could buy a partial position on a move above $63.85, and then add to it on confirmation of the rally above the $65 area. EWW is unlikely to move above our trigger price in today's session, but it will be on my ETF trading watchlist as a potential breakout entry next week.

 

[morpheustrading]

Two actionable swing trade buy setups in the coming days ($IBB, $CBM)

Since August 9, the iShares Nasdaq Biotechnology Index Fund ETF ($IBB) has been on our ETF trading watchlist as a potential pullback trade entry. Though it has not yet traded through our preset trigger price for buy entry, it formed a bullish hammer candlestick pattern yesterday, which could lead to upside follow-through in today's session. Further, it "undercut" (briefly dipped below) near-term support of its 20-day exponential moving average, as well as the low of its six-day trading range. This is illustrated on the daily chart pattern of IBB below:

When an ETF "undercuts" a key moving average, as $IBB did yesterday, this serves to sweep poorly placed stops and shake the "weak hands" out of the trade. This has the effect of absorbing overhead supply, thereby clearing the way for the equity to move higher. When a bullish reversal candle forms after a stock or ETF has "undercut" a key level of support, we refer to this type of buy entry as a pullback entry. Pullback entries develop when an ETF or stock gently retraces from the most recent "swing high" of its uptrend and finds technical support at an area of horizontal price support and/or a key moving average. After this happens, it is important to wait for the ETF to form a "pivot," which allows for a relatively low-risk pullback entry for swing trading. The best buy pivots tend to occur when an ETF or stock forms a bullish reversal candles (such as a "hammer") that sharply undercut a key support level on an intraday basis, but subsequently recovers to close near the high of the day. When this occurs, our trigger for buy entry of at least partial share size is simply above the high of the reversal candle. Because of the combined "undercut" with reveral candle that $IBB formed yesterday, we have lowered our exact trigger price for buy entry of this trade setup.

On August 2, small-cap stock Cambrex Corp ($CBM) reported quarterly earnings that blew away analyst estimates by 50% (33 cents EPS vs. 22 cents EPS). That day, traders piled into the stock, driving its price 22% higher on volume spike that was nearly 500% greater than average (highlighted by the pink ellipse on the chart below). In the week that followed, $CBM pulled back slightly, forming a bull flag chart pattern in the process.

Spotting this bullish swing trading setup while doing a Pullback Scan, we added $CBM to our stock watchlist on the morning of August 9. That morning, $CBM triggered our buy entry (blue ellipse on the chart above) when it rallied above the previous day's high, which correlated to a move above the upper channel resistance of the newly-formed bull flag (dotted black line). At its intraday high that day, $CBM had already zoomed 3.9% above our entry price of $11.12. However, as indicated by the long wick of that day's candlestick, the intraday rally attempt failed and $CBM closed within a few pennies of our entry price. Although that day's bearish price action was a bit concerning, it is not uncommon for the first breakout attempt to fail and for the price to come back down to test support of the prior breakout. Besides, we already had our protective stop in place. We were not concerned about the outcome either way because we use a "set it and forget it" mentality with regard to setting stops.

Yesterday (August 13), $CBM closed just shy of its August 9 intraday high and at a fresh multi-year closing high. Volume also came in above its 50-day average level. Now, if $CBM moves above yesterday's high of $11.57 within the next day or two, there will be a complete lack of overhead resistance and supply, which could lead to a sharp, momentum driven surge higher in the near-term. As with most of our individual stock swing trades, we will be looking for a gain of 15% to 20% above our entry point, at which point we would be looking to take profits and sell into strength. With yesterday's rally, the trade is currently showing an unrealized gain of just under 3% from our entry point.

 

[morpheustrading]

UltraShort Euro ETF ($EUO) - Potential pullback buy entry

Since selling off to "undercut" support of its 50-day moving average two weeks ago, the inversely correlated ProShares UltraShort Euro ($EUO) has been trading in a tightening, sideways range, holding above support of its primary uptrend line and 50-day moving average. As the daily chart below illustrates, the primary uptrend has been in place for many months, while $EUO has been in a four-week retracement off its July high:

This type of chart pattern shown above is normal and healthy, and is indicative of what a steadily uptrending stock or ETF typically looks like. Whenever one trendline is moving in one direction (the ascending dashed blue line) and another trendline is moving in the opposite direction (the descending dotted red line), the longer-term trendline typically wins out. This is why we always say that the longer a trend has been in place, the more likely the trend will remain intact. In this case, odds favor a resumption of the dominant uptrend in $EUO. Further, because this is a Pullback Buy setup, the reward to risk ratio of the trade setup is favorable.

Going into today's session, keep a close eye on the performance of $QQQ, an ETF proxy for the Nasdaq 100 Index. Last Friday's gain put $QQQ within close striking distance of testing major resistance of its late March/early April highs. This does not mean we should suddenly be selling our long positions (since our market timing model is now in a "buy mode"), but a pullback as the index runs into this resistance level would not be surprising. We will possibly analyze $QQQ in our technical ETF newsletter commentary later this week, depending on its price action over the next few days.

 

[morpheustrading]

Why iShares Nasdaq Biotech ETF ($IBB) is poised for breakout to new high

The iShares Nasdaq Biotechnology ETF ($IBB), which we have been long since August 14, showed relative strength by rallying 0.9% while the S&P 500 was flat yesterday (August 22). More importantly, it closed just above an area of near-term horizontal price resistance. For swing traders who missed our original August 14 buy entry, $IBB is now presenting a secondary buy setup (or a place to add additional shares to existing position). The first chart below is of the hourly timeframe, which shows yesterday's breakout above the near-term technical price resistance (the dotted blue line):

Shifting to the daily timeframe, notice that yesterday's rally in $IBB also correlated to a breakout above the downtrend line from the July 27 high (the descending blue line). Since this ETF has broken out above resistance levels on two different timeframes, it further increases the odds of $IBB moving higher from here. If looking for a secondary buy entry into $IBB, consider a buy trigger above yesterday's high of $134.32, which would confirm the breakout above resistance:

 

[Spec-K Trading]

Nice set up on IBB, thanks. My own system definitely calls for a buy there, probably with a stop buy just over the current market (particularly since the overall market is in a significant down draft. If the market was healthy I'd just get in now). My only hesitation on the trade is that the volatility on IBB is pretty low at 1.3%. Going up to the recent highs (138) is only about a 3% gain; I prefer situations where that kind of rise is more like 5-7% (or more) ideally, and I can take a much higher probability profit at a "part way" point. But it is a great set up.

Isn't it a copyright violation to post TradeStation charts? You might want to check their terms and conditions.