Focus on these commodities ETFs
Yesterday was a rather
uneventful day for the major indices, as the broad market traded in a very
tight, sideways range throughout the entire session before finishing a tad
higher. The S&P 500 gained 0.2% and the Nasdaq Composite 0.1%, but
the Dow Jones Industrial Average was unchanged. Both the small-cap Russell 2000
and S&P Midcap 400 indices advanced 0.2%. It was an “inside day” for both the
S&P and Nasdaq, meaning that their intraday highs and lows were both within
their respective trading ranges of the prior day’s session. Volatility
contracted greatly yesterday, as the S&P crawled along in a extremely narrow
trading range of only 3.5 points. Since the range has been pretty tight for the
past four days, be prepared for an inevitable volatility expansion soon.
Volume patterns were about as interesting as the
broad market action. In the NYSE, total volume increased by 1%, but volume in
the Nasdaq was 1% lower than the previous day’s level. Turnover in both
exchanges remained below average levels, which is common when volatility dries
up. In the NYSE, advancing volume exceeded declining volume by 1.6 to 1. The
Nasdaq ratio was barely positive.
One of the top performing sectors yesterday was
the CBOE Gold Index ($GOX), which zoomed 4.3% higher. Our long position in the
StreetTRACKS Gold Trust
(
GLD |
Quote |
Chart |
News |
PowerRating) only moved 0.8% higher, but the spot gold
commodity also held up better than the gold stocks during the recent correction.
We continue to like the chart pattern in GLD, which we began buying on October
25. After a brief shakeout on November 8, which we used as an opportunity to add
to our position, GLD immediately snapped back and closed at a new multi-month
high the following day. Since then, it has been consolidating in a tight,
sideways range, enabling its 20-day moving average to rise up and provide
support below. Looking at the weekly chart of GLD below, notice how well it has
been acting since breaking out above its primary downtrend line three weeks ago:
We expect GLD to break out above its November 9
high within the next several days. When it does, momentum should carry it
several points higher, at which point we plan to sell our position into
strength. In addition to GLD, you may find opportunities in two other
mining-related ETFs: the Market Vectors Gold Miners
(
GDX |
Quote |
Chart |
News |
PowerRating) and the iShares
Silver Trust
(
SLV |
Quote |
Chart |
News |
PowerRating). GDX is comprised of a basket of gold mining stocks,
while SLV mirrors the price of 10 ounces of the spot silver commodity. Below are
daily charts of both:
Over the past several weeks, the Japanese Nikkei
225 Index has been showing major weakness. As such, international ETFs
correlated to the Japanese markets have sustained losses as well. Both the
iShares Japan
(
EWJ |
Quote |
Chart |
News |
PowerRating) and the Vanguard Pacific
(
VPL |
Quote |
Chart |
News |
PowerRating) have broken major
support levels and are setting up for potential short sales on the next bounce
into resistance. Of the two, we like the chart pattern and volatility of VPL
better. On its daily chart below, notice how it failed its October 26 breakout,
rolled over, then fell below its 200-day moving average only two days ago:
Prior support of its 200-day moving average
should now act as the new resistance level. As such, we like the idea of selling
short VPL on any rally attempt into its 200-day moving average. Such an entry
would provide you with a positive risk/reward ratio because you could place your
protective stop just above the 20-day moving average (presently at 64.11).
Assuming VPL fizzles out and heads back down, the first level of support would
be found at the September 25 low of 60.79. Beyond that, it could drop rather far
before finding any significant price support. In the event that VPL moves lower
from here without bouncing first, be sure to reduce your share size in order to
minimize the risk of a less ideal entry point.
NOTE: The U.S. markets will be closed this
Thursday, November 23, in observance of the Thanksgiving Day holiday. On Friday,
November 24, the stock market will close early at 1:00 pm EST. As such, The
Wagner Daily will not be published this Thursday, but regular publication will
resume on Friday.
Open ETF positions:
Long GLD and PBW (regular subscribers to
The Wagner Daily receive detailed stop and target prices on open
positions and detailed setup information on new ETF trade entry prices. Intraday
e-mail alerts are also sent as needed.)
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. For a free trial to the full version of
The Wagner Daily or to learn about Deron’s other services, visit
morpheustrading.com
or send an e-mail to
deron@morpheustrading.com .