Oscillating between positive and negative territory throughout the day, the major indices traded in a whippy and indecisive fashion throughout the entire day. Thirty minutes before the closing bell, stocks were poised to finish moderately lower, but a curious wave of buying in the final fifteen minutes of trading lifted the main stock market indexes to the plus column. The Dow Jones Industrial Average finished 0.4% higher and the S&P 500 advanced 0.3%. The Nasdaq Composite eked out a gain of 0.1%. Small and mid-cap stocks again showed relative strength. The Russell 2000 and S&P Midcap 400 indices rallied 0.9% and 0.8% respectively. All the major indices finished near their intraday highs.

Total volume in both the NYSE and Nasdaq edged 3% above the previous day’s levels, as trading in both exchanges came in right around average levels. In the NYSE, advancing volume exceeded declining volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was marginally positive, at 3 to 2.

Early last week, we began developing a watchlist of strong ETFs we were monitoring for potential buy entry on a correction to short-term support levels. Specifically, we were looking for either a “correction by time” (consolidation) or “correction by price” (pullback) that enabled those ETFs to at least come into very short-term support of their 10-day moving averages. Preferably, we wanted to see a retracement to more significant support of their 20-day exponential moving averages, a reliable level that usually triggers a resumption of the dominant trend in steadily trending stocks and ETFs. Since then, most ETFs on our watchlist have traded in a sideways range, correcting by time. Now, many have come into support of their 10-day moving averages, while the 20-day exponential moving averages have been rising closer to their current prices. Because we have been focusing our efforts on the developing action in many commodity and currency ETFs, we’ve not entered any of those industry sector and international ETFs on our watchlist. However, now that there’s at least been a bit of price consolidation, let’s take an updated look at some of those charts.

On each of the daily charts below, we’ve circled (in pink color) support of the 20-day exponential moving averages, and have highlighted any other areas of support, such as recent breakout levels, that could present low-risk entry points. If one is looking for a new entry into any of these ETFs, the charts below show where a positive reward-risk ratio on these trades could be found. The purple dotted lines are the 10-day moving averages, the beige lines are the 20-day exponential moving averages, and the teal lines are key support of the 50-day moving averages. If any of these ETFs retrace to their “buy zones” in the coming days, note we will only make an “official” trade entry if a detailed Intraday Trade Alert is sent to subscribers informing of such. Still, advanced traders may want to set price alerts on their trading platforms to instantly be notified of any ETFs that enter into potential buy areas:





Obviously, the possibility exists these ETFs will make another leg up without pulling back to their 20-day EMAs, or without consolidating long enough for their 20-day EMAs to rise up to meet the current prices. But if that happens, we’re not worried about it. We’ve learned from years of experience that chasing the bid of stocks and ETFs extended well beyond proper buy points is a strategy that statistically loses more than it wins. One possible exception is for day traders, or others who are comfortable quickly closing a trade, if necessary, within a day or two after entry. Remember, this newsletter is generally focused on holding trades for an average of one to three weeks (sometimes longer for winning trades). Even if these extended ETFs continue higher without pulling back first, we’re already positioned in several promising commodity and currency ETFs that were bought near low-risk entry points.

Open ETF positions:

Long – DGP, FXB, FXY
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’s new book, Trading ETFs: Gaining An Edge With Technical Analysis, was published by Bloomberg Press in August, 2008. Wagner also 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.

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.