On June 21, we sold THD into strength of the morning gap up at 49.00. We’ll continue to monitor THD for a low-risk entry point on a pullback due to its great relative strength vs. the S&P 500 (detailed on the weekly chart below):
We made a judgment call to sell THD and lock in gains as it approached resistance of the prior high. With a little consolidation and patience, we may see a low-risk buy entry develop at or near the rising 20-day EMA within the next week or two (as long as the price & volume action in the broad market averages remains healthy).
Yesterday’s false breakout above the downtrend line in Vanguard REIT (VNQ) could lead to a nice washout over the next few days. We would view any short-term selloff as a positive if the price action holds above the 49.00 area. If this pattern is ready to push higher then it should recover quickly from a potential three to five bar selloff and close back above the downtrend line.
To gain perspective on leadership stocks, lets take a look at the weekly chart of the small-cap Russell 2000:
We see strong support at the lows, as the price action did not close below the 40-week moving average during the correction. One could bring up a weekly chart of the S&P 500 and see the price action close below the 40-week week MA several weeks in a row. We also see that the Russell is trading back above the highs of January 2010, while the S&P 500 is clearly still below it. The price appears to be carving out the cup portion of a potential cup and handle pattern. We are still waiting for confirmation in the form a convincing surge through the 10-week moving average before turning bullish.
| Open ETF positions:
Long – UNG |
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Deron Wagner is the Founder and Head Portfolio Manager of Morpheus Trading Group, a capital management and trader education firm launched in 2001. Wagner is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis (Bloomberg Press, August 2008), and also appears in the popular DVD video, Sector Trading Strategies (Marketplace Books, June 2002). He is also 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. Wagner is a frequent guest speaker at various trading and financial conferences around the world, and can be reached by sending e-mail to deron@morpheustrading.com.
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