Here’s a list of ETFs poised to move higher
The broad market began with an opening gap up that
led to sideways range throughout most of yesterday’s session, but
the bears arrived on the scene in the final hour, causing the major indices to
sustain yet another day of substantial losses. The S&P 500, Nasdaq Composite,
and Dow Jones Industrial Average each lost 0.7%, while the S&P Midcap 400 slid
0.9%. The small-cap Russell 2000 again showed the most relative weakness by
closing 1% lower, thereby causing our short position in the iShares Russell
2000 (IWM) to finish with a marked-to-market gain of 3%. For the first time in
nearly twelve years, the Nasdaq
suffered its eighth consecutive
day of losses. Investors Business Daily
reports that the Nasdaq has only had six losing streaks longer than its
current eight-day string of losses since 1974. The Nasdaq also closed below
support of its 2006 low that we illustrated in yesterday’s
Wagner Daily and is now
down 1.1% for the year.
Although it may not be very comforting to the
bulls, one positive is that yesterday’s losses occurred on lower volume. Total
volume in the both the NYSE and Nasdaq exchanges was 13% lower than their
respective levels of the previous day. After the numerous “distribution days”
that have contributed to the broad market’s recent collapse, a session of
lighter volume losses may indicate that institutions are taking a break from
the heavy sell programs, at least in the short-term. Nevertheless, there have
yet to be any signals that the market is ready to bounce, especially since the
Nasdaq blew right through its 200-day moving average on May 17. An upside
retracement will eventually come, but trying to pick a bottom in such a weak
environment could become a very expensive proposition.
Because there
has been such a strong trend in the broad market over the past week, most of
our recent commentary and analysis has been focused the major indices instead
of specific industry sectors. With practically every sector succumbing to the
selling pressure, we felt it was more important to analyze key support levels
of the major indices rather than chart patterns within individual sectors that
have been following the overall market anyway. But since stocks will
eventually bounce, it is a good
idea to know which sectors have been showing the most relative strength to the
broad market over the past week. Those stocks and ETFs that did not fall when
the market did will likely be the first to surge higher when the market
retraces some of its recent losses.
To find out
which sectors have been holding up the best, we scanned for all the ETFs that
were showing an overall gain
from the close of May 10 (before the selloff began) through yesterday’s close.
Out of the 247 ETFs we searched, only 8 of them were trading higher throughout
this time period. The top gainer, weighing in with a whopping 1.5% advance,
was the iShares Health Care Index (IHF). Most of the ETFs that were only
negative by a small margin were also related to health care. Another one of
the eight advancers of the past week was the Euro Currency Trust (FXE), which
mirrors the price of the Euro versus the U.S. dollar. The remaining six ETFs
were all within the same sector. Care to guess which one? The other gainers
were all part of the iShares family of fixed-income (bond) ETFs. Not only did
this group of ETFs buck the trend of the equities markets, but a few of them
are also showing signs of bottoming from their lengthy downtrends. Take a look
at the iShares Corporate Bond Fund (LQD), for example, which broke out above
horizontal price resistance yesterday after forming a double bottom the
previous day:
The low
volatility of the fixed-income ETFs makes them a bit too slow for active
short-term trading, but they provide a great parking place for any long-term
retirement funds such as IRAs in which you are prohibited from selling short.
If you are concerned about the recent weakness in the broad market and are
looking for a place to diversify some of your long-term funds, you may want to
consider the fixed-income ETFs, especially since many of them appear poised to
break out above their downtrend lines. The six iShares fixed-income ETFs and
their ticker symbols are listed on the “Specialty ETFs” tab of our
ETF Roundup reference
guide.
Open ETF positions:
Short IWM (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 .
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