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Two New ETF Swing Trade Setups You Can’t Afford To Miss ($SKF, $UNG)

Going into today, we are targeting two more ETFs for potential swing trade entry. The first is ProShares UltraShort Financials ($SKF), which is another trend reversal play of a “short ETF.” After forming a month-long base near its multi-year lows, the ETF recently formed a “higher low,” then broke out above intermediate-term resistance of its 50-day moving average on higher than average volume.

As you may recall from yesterday’s ETF analysis, in which we pointed out the breakdown in Select Sector Financial SPDR ($XLF), bearish momentum has started picking up in the financial sector. As such, we are looking to take advantage of this newfound weakness through buying SKF. However, because the ETF has rallied so much over the past two days, we are only interested in buying SKF if it pulls back slightly from its current level (buy limit order). Otherwise, our reward to risk ratio on the trade would be lower than we prefer.

The trade setup and potential entry point is shown on the chart below (regular subscribers should note our exact entry, stop, and target prices on the ETF Trading Watchlist section of today’s newsletter):

121109$SKFchartpattern.PNG


The second ETF on our watchlist for potential buy entry today is US Natural Gas Fund ETF ($UNG), a commodity ETF that tracks the price of the natural gas futures contracts.

UNG is now setting up for an ideal re-entry point that is lower risk than last month’s initial buy entry because the ETF has come into intermediate-term support of its 50-day moving average. In addition to trading in a tight, sideways range for the past four days, UNG also formed a bullish engulfing candlestick pattern yesterday, which enables us to have a more clearly defined stop price.

The combination of technical factors above indicates selling pressure has subsided, and the ETF is now positioned to resume its uptrend from the April 2012 lows. The setup for this ETF pullback trade is shown below:

121109$UNGchartpattern.PNG


Thanks to our market timing system remaining in “sell” mode (since October 12), we continue to be positioned primarily on the short side of the market (including being long “short ETFs”). Over the past two days, with the main stock market indexes falling sharply, those bearish positions have started working out nicely.

We bought ProShares UltraShort Basic Materials ETF ($SMN) on Nov. 7 and ProShares UltraShort Real Estate ETF ($SRS) on Nov. 5, two inversely correlated ETFs that move in the opposite direction of their underlying indexes. Both were entered as bullish trend reversal plays. Yesterday, SMN gained 2.8% and SRS rallied 1.9%, as both ETFs broke out above key horizontal price resistance levels. This is annotated on the daily charts of these “short ETFs” below:

121109$SMNchartpattern.PNG


121109$SRSchartpattern.PNG


In addition to SMN and SRS, our position in Direxion 20-Year Treasury Bull 3x ($TMF) also had a great day. Government treasury bonds rallied sharply, enabling our position in TMF to rocket 4.5% higher yesterday. Although it is not a short position or inverse ETF, our ETF trading strategy enabled us to recently buy TMF because it is a fixed-income ETF that is not necessarily correlated to the direction of the stock market. The same is generally true of currency and commodity ETFs, both of which enable investors and traders to have a low correlation to the direction of the stock market, without the need to sell short or buy a “short ETF.”

As you can see on the chart below, TMF has now confirmed its intermediate-term trend reversal, and has convincingly broken out above horizontal price resistance as well:

121109$TMFchartpattern.PNG


When will the near and intermediate-term selling pressure in the broad market finally subside? We have no idea, nor does anybody else. But the beauty of following a rule-based trading system is that it really doesn’t matter because we can profit from trends in either direction. Moreover, remember that we are NOT in the business of predicting what the market will do next. Rather, our strategy is simply designed to dynamically react to whatever type of price action the broad market throws at us at any given time.

Developing a mindset to not care about market direction or duration of trends is not easy at first, but once you condition yourself to be indifferent about the market’s direction, or how long a trend will persist, it will definitely ease any level of mental stress or anxiety. In turn, this will enable you to think more clearly and maximize your short-term trading profits.
 
Hey there,

Thanks for your comment.

Which day were you referring to? I ask because I did not see any bullish intraday reversal bars the past two days. What time interval are you looking at on your charts?

sakonara said:
On a technical level, I think one reason for today's sharp downward move is the fact that the main stock market indexes all formed bullish intraday reversal bars
Click to expand...
 
How High Will The Nasdaq And S&P 500 Bounce Before Hitting Resistance? ($SPY, $QQQ)

Last week’s bearish price action caused the main stock market indexes to plunge through major levels of technical price support, including key moving averages and prior “swing lows.” Now, those technical levels of prior price support will act as the new levels of price resistance on any rally attempt. This is because the most basic tenet of technical analysis is that a prior level of support always becomes the new level of resistance, after support is broken (and vice versa).

Since last week concluded with a modest rally attempt on November 9, it may have been the start of a significant counter-trend bounce. However, with an abundance of overhead supply now in the broad market, it would not be long before benchmark indexes such as the S&P 500 ($SPX) and Nasdaq Composite ($COMPQ) start running into new overhead resistance levels that could easily stall any decent rally attempt.

In the video below, we use simple and objective technical analysis to highlight pivotal price levels where both the S&P and Nasdaq could run out of gas in the near-term if stocks start bouncing higher in the coming week. Press the “play” button on the video player below to watch this short technical analysis video (click icon on bottom right side of player window to view in full screen):

http://www.youtube.com/watch?v=M_WUqUq69V8

If you use direct access stock trading software, it may be a good idea to set price alerts for the S&P 500 and Nasdaq Composite at the resistance levels mentioned in the video. Doing so will enable you to be instantly notified when the broad market inevitably enters into a counter-trend bounce and eventually starts bumping into technical resistance levels that will likely be difficult for the broad market to overcome in the short-term.
 
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A Top ETF To Buy When The Stock Market Finds A Bottom ($FXI)

Although our market timing system remains in “sell” mode, and our near to intermediate-term focus remains on the short side of the market, it’s never a bad idea to keep an eye on ETFs and stocks that are exhibiting relative strength to the broad market, as these will be the first equities to move higher when the broad market eventually finds support and bounces.

One of the very few ETFs showing relative strength since the two-month selloff in the US broad market began is iShares Xinhua China 25 Index Fund ETF ($FXI). Although the main stock market indexes of the USA have been in a downtrend since mid-September, FXI actually started trending higher just as the domestic markets started selling off. But despite its relative strength, FXI began correcting last week, and is now in pullback mode. However, this is still an ETF to consider buying if the stock market suddenly surprises us with a confirmed buy signal. Looking at the daily chart of FXI below, notice that FXI pulled back yesterday to close right at support of its 200-day moving average, following an extended run up from its October breakout. Support of the 200-day MA also coincides with new horizontal price support form the prior highs:

121114FXI.png


At the present time, we are NOT looking to buy FXI because the domestic broad market has yet to put in a convincing near-term bottom. Until it does, increasing or persistent bearish momentum in the US markets is likely to hold this ETF in check. Still, FXI should be on your watchlist as one of the first ETFs to consider buying when stocks eventually find a meaningful bottom. Therefore, it has been added to our internal watchlist as a potential long candidate, just in case our rule-based market timing model happens to shift back into “neutral” or “buy” mode any time soon.

High volatility and intraday indecision, such as was exhibited in yesterday’s broad market action, can be nerve-racking and frustrating for short-term swing traders. However, there is one benefit to such price action. Since stocks formed a similar intraday pattern (morning strength followed by afternoon weakness) on November 9, we now have two failed intraday rally attempts within the past three days. The benefit of this is that it makes it easy to adjust protective stop prices on short positions because if the main stock market indexes manage to rally above their three-day highs, bullish momentum will probably move stocks substantially higher in the near-term.

Presently, our model ETF trading portfolio is showing an unrealized gain of approximately $1,100 in trading profits (just over a 2% portfolio gain based on the $50,000 model account value). But because of the price action described above, we have now trailed the protective stops on our ETF and stock positions much tighter, so that we will still lock in substantial trading profit even if the major indices suddenly jump back above their three-day highs. Nevertheless, the weak action of the past three days also means there is an equally good chance that stocks could now tumble to new lows, due to the back to back failed reversal attempts (including the November 12 “inside day”). If that happens, our existing short and inverse ETF positions would realize substantially larger gains, and we would then immediately trail the protective stops even tighter, or look to take profits, the following day.
 
Why The Stock Market May Be Nearing a Significant Bottom

In the last paragraph of this post (starting with the red text), we will tell you why stocks may now be nearing a significant bottom. But first, let's take a look at another trade setup to put on your radar screen as well as a quick recap on our existing open positions...

After rallying off the summer lows and clearing the 200-day MA in early-September, SPDR S&P Oil & Gas Exploration ($XOP) stalled out after one thrust above the 200-day MA. Over the past few months, the price action has deteriorated, starting with the uptrend line break in late October, which coincided with a break of the 50 and 200-day MAs. The 20-day EMA is now below the 50-day MA, and the 50-day MA is beginning to slope lower. We also see a series of "lower highs" and "lower lows" the past two months, signaling a reversal of the uptrend. At its current level, $XOP is NOT actionable on the short side, but swing traders should add this to their watchlist for potential short entry on a bounce to resistance, in the area of the 200-day MA. This is shown on the daily chart of XOP below:

121115XOP.png


Earlier today, we sold ProShares UltraShort Basic Materials ($SMN) for a 9.2% gain since our November 7 swing trade entry. Yesterday morning, we sold our swing trade position in Direxion 20+ Year Treasury Bull 3x ETF ($TMF) for a net gain of 6.8% (just over 5 points). The trade setup was initially pointed out on this October 30 blog post. Later in the day, as the market broke down, ProShares UltraShort Real Estate ($SRS) hit our predetermined target price of $27.48. As such, we sold SRS into strength and closed it for a nice gain of 8% since our November 5 buy entry.


Our only recent disappointment was yesterday's price action in Global X Silver Miners ETF ($SIL), which hit our stop price when it fell below the prior day's low. Nevertheless, our stop was in the right place because SIL subsequently sold off another 7% below our exit price by the closing bell. This type of selling action after the ETF broke technical support was a great reminder of the crucial importance of always trading with and honoring your protective stop prices. Losing trades are a normal and unavoidable part of the business, but the only way to be a consistently profitable swing trader is to ensure the losses of your average losing trades are less than the gains of your average winning trades.

We now have three remaining open positions in our model trading portfolio, which consist of one inverse ETFs ($SKF) and two individual stocks on the short side ($COH and $SBUX). With these open positions, each of which is now showing a solid unrealized gain, we have once again tightened the stop prices so that we can protect at least half of the unrealized gains each position is showing (based on Wednesday's close). Regular subscribers of our swing trading newsletter should note our updated stop prices on the "Open Positions" section of today's report. Do not look at these updated stop prices as magical resistance levels that we identified using technical analysis. Rather, we simply placed them just below the half way point of yesterday's wide-ranged candlesticks. They are basically "money stops." If our positions continue moving further in our favor, that's great. But if the price action suddenly reverses, we will still keep the majority of our profits (barring any surprise opening gaps).

For a weak market to form a significant bottom, there typically needs to be at least one or two days of panic selling, where investors finally give up and just want to sell at any price. It seems as though Wednesday's action might have been the beginning of such a move, as there isn't much out there that is still holding up. Our nightly scans for new short selling setups have dried up this week, as most sector ETFs have already been hit hard and are now too extended to offer low-risk entry points. Because of this, we will continue to lay low with regard to new positions and just focus on managing our existing winning trades.
 
How To Profit From Swing Trading “Short ETFs” (Trading Strategy Video)

In the stock trading strategy video below, we do an educational technical review of an actual swing trade in ProShares UltraShort Basic Materials ETF ($SMN), an inversely correlated “short ETF,’ which we bought November 8 and sold on November 15. Upon closing the swing trade, we had scored a solid 9.2% gain on an 8-day swing trade.

In this 3-minute video, you will learn the specific technical analysis signals that prompted us to buy this “short ETF,” which has recently reversed its primary downtrend. For best quality, play the video below and click on the bottom right corner of the video player window to view in full-screen mode:

How To Profit From Swing Trading "Short ETFs" (Trading Strategy Video)

As discussed in the video, many traders fail to successfully trade on both sides of the market because, even if they have the right technical chart patterns, they simply buy or sell at the wrong time. Following a proven, objective system to indicate the proper timing for buying or selling ANY stock or ETF in the market is one of the most critical elements that determines whether or not a trade will be profitable.

Although the stock market has sold off sharply in recent weeks, adhering to the signals of our rule-based market timing system has enabled subscribers of our newsletter to realize substantial profits from swing trading ETFs and stocks on the short side (combined with buying "short ETFs").
 
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A New ETF Short Sale Setup ($XHB)

Over the past several days, we have been clearly explaining that our current plan of action is to be in “SOH mode” while waiting for the weakest ETFs and stocks to bounce into significant technical resistance levels, such as moving averages and prior lows. Then, we would wait for the bearish reversal patterns as a signal to initiate new short positions (and/or buy inversely correlated “short ETFs”). As such, we were pleased with yesterday’s (lighter volume) relief rally because it puts us closer to getting back into the market with new swing trades, albeit likely on the short side.

Given yesterday’s large percentage gains, the current bullish momentum could easily cause stocks to move higher for at least another week or two before the bears return to the market, causing the established downtrend to start taking hold again. Nevertheless, it’s important to remember that the stock market is very dynamic. For example, the sudden presence of an “accumulation day” (higher volume gains), followed by a confirmation day in which stocks jump another 1.5% to 2% at least three to four days later, could actually generate a new “buy” signal in our model for market timing. If that happens, no problem; we don’t care either way. Our proven stock trading strategy is based on trading either side of the market by simply reacting to current price action in front of us, rather than making predictions about market direction. Simply put, we always trade what we see, not what we think!

In yesterday’s newsletter, we said we were looking for pullback re-entry points into our recent winning ETF trades ($SRS, $SMN, $SKF, and $TMF). We also said we were looking for new short entry points in non-inverse ETFs such $IBB and $QQQ. Yesterday’s rally was a good start, as the inverse ETFs we’re stalking for re-entry pulled back substantially, while the non-inverse ETFs conversely bounced sharply higher (approaching resistance). Still, none of these ETFs we have been discussing are near the levels where we would consider entering them just yet. However, we came across one ETF that is already set up for possible short entry in today’s session.

The SPDR S&P Homebuilders ETF ($XHB) was one of the last ETFs to break down below support during the recent decline, but now the ETF has a lot of immediate overhead supply and resistance to contend with. Just like many other stocks and ETFs, XHB jumped 2% higher yesterday. However, it formed a bearish reversal candlestick (similar to a shooting star candlestick) after running into resistance of both its 20-day exponential moving average and 50-day moving average. The ETF closed near its intraday low, and below both moving averages. This is shown on the daily chart of XHB below:

121120$XHBshootingstar.png


The setup for this swing trade is that we will only sell short XHB if it trades below yesterday’s low. This would provide us with a valid short entry point because its current relative weakness would indicate a resumption of downward momentum if that happens. Note that entering before a break of yesterday’s low is risky and not a valid short entry point. We are listing XHB as an “official” setup on our ETF Trading Watchlist today, so regular subscribers of our swing trading newsletter should note our exact, preset trigger, stop, and target prices for this swing trade setup on the short side.
 
3 ETFs Technically Setting Up For Buy Entry Now ($EEV, $TMF, $SMN)

One ETF we are stalking for technical swing trading buy entry today is ProShares UltraShort Emerging Markets ETF ($EEV), an inversely correlated short ETF. As you can see on the chart below, EEV broke out above a six-month downtrend last week, and has now pulled back to near-term support of its 20-day exponential moving average, which recently crossed above the 50-day moving average. This is a bullish trend reversal signal. With the ETF moving higher in yesterday’s session, but closing just below the previous day’s (November 19) low, we are now monitoring EEV as a potential short-term trade above the two-day high. Regular subscribers should note our exact entry, stop, and target prices for this short-term momentum trade setup in the ETF Watchlist section of today’s newsletter. The technical trade setup for EEV is shown on the daily chart below:

121121$EEVpullback.png


Although the main stock market indexes were flat yesterday, there were at least two ETFs we have been monitoring that pulled back to near-term technical support levels. Specifically, they retraced to test or “undercut” their 20-day exponential moving averages. One of those ETFs was Direxion 20-Year Treasury Bull 3x ($TMF), a fixed-income ETF that roughly follows the price of the US long-term treasury bond, but is leveraged at a 3 to 1 ratio. Last week, we sold this ETF for a substantial trading profit, after it broke out above resistance of a four-month downtrend line. However, the ETF has remained on our radar as a potential swing trade re-entry on a pullback. The current pullback that followed the recent breakout above the downtrend line is shown on the daily chart of TMF below:

121121$TMFpullback.png


As you can see, TMF sold off sharply yesterday, and closed just below near-term technical support of its 20-day exponential moving average. Such a price retracement off its recent highs provides a low-risk re-entry point to buy this ETF. However, remember that we do not blindly try to anticipate where a pullback will end and find support. Rather, we must now wait for the formation of a bullish reversal candlestick within the next several days, then look to buy TMF above the previous day’s high, which would confirm the pullback off the highs has ended, and TMF is likely to resume its bullish trend reversal. Therefore, although TMF is not yet listed on today’s watchlist as an “official” buy entry, it is now on our internal watchlist as a potential technical swing trade setup we are monitoring for the proper trigger point for buy entry.

Another ETF with a similar pattern is ProShares UltraShort Basic Materials ETF ($SMN), another short ETF. After buying the breakout above its downtrend line, we sold this ETF into strength last week for a 9.2% gain on an 8-day holding period (click here for a quick educational video recap on YouTube of the technical setup of this recent swing trade). Now, it has pulled back to near-term support of its 20-day EMA, but probably needs another day or two to either “undercut” support of the 20-day EMA, or at least form a bullish reversal candle, before we would look for an actual re-entry point into this ETF. Like TMF, this setup in SMN has been added to our internal watchlist as a potential near-term buy entry. The daily chart pattern of SMN is shown below:

121121$SMNpullback.png


Going into yesterday’s session, we were stalking SPDR S&P Homebuilders ETF ($XHB) as a potential short sale entry if it traded below the November 19 low. However, the ETF opened slightly higher, then rallied to close near the previous day’s high. As such, the ETF did NOT trigger for short sale entry, and has been temporarily removed from our “official” watchlist as a swing trade setup. Whenever we list a swing trading setup that does not hit our trigger price, we don’t care because there is “no harm, no foul” for disciplined traders.
 
Why The Nasdaq Still May Not Have Found A Bottom ($QQQ)

It was obviously positive that stocks continued building on their gains since bouncing off their mid-November lows, and did so on higher volume last Friday. However, it’s still too early to declare an end of the broad market’s multi-month downtrend from its September 2012 highs. One of the biggest reasons we say this is because the main stock market indexes still have an abundance of overhead supply to contend with. Furthermore, several of the major indices are now bumping into, or are quickly approaching, key technical resistance levels. One good example of this can be seen on the daily chart pattern of PowerShares QQQ Trust ($QQQ), a popular ETF proxy for trading the Nasdaq 100 index:

121126QQQ.png


As you can see, $QQQ broke out above resistance of its 20-day exponential moving average last Friday. However, notice the horizontal price resistance just overhead, which was formed by the prior swing lows from late October, as well as the prior highs from July. Furthermore, the 200-day moving average, which formerly acted as support and now will provide formidable resistance, is less than 1% above the current price of $QQQ. Above that resistance level is the 50-day moving average, which has been sloping lower since mid-October, and is in danger of crossing below the 200-day moving average.

Whenever a market is trying to form a significant bottom, but has a plethora of overhead resistance levels, it is common for there to be at least one shakeout that tests or “undercuts” the prior low (from November 16), before the index can reset itself and start heading back up. For these reasons, it is still too early to declare the Nasdaq has found a significant bottom.

Another key broad-based ETF, the iShares Russell 2000 Index ETF ($IWM), has a similar chart pattern to $QQQ. The one difference is that it has already bounced to close right at its 200-day moving average last Friday. Furthermore, $IWM is still trading below the upper channel of its downtrend line from the September 2012 highs (the red line on the chart below), which may be difficult to overcome on the first few attempts. Take a look:

121126$IWM.png


We’ll be closely monitoring the price action of both $QQQ and $IWM in the coming days, as the ability or inability of these indexes to move back above their 200-day moving averages, horizontal price resistance, and trend channel resistance may determine the tone of the broad market trend for the rest of the year. We focused on these broad-based ETFs, rather than the S&P 500 SPDR ($SPY) and Dow Jones Industrial SPDR ($DIA), because they better represent the performance of leading stocks (solid breakouts of leading individual stocks is a key component of a healthy market). Additionally, $QQQ and $IWM showed the most relative weakness of the broad-based ETFs on the way down, so they have the most technical damage to overcome.

Although we are still monitoring for new, low-risk entry points for ETF swing trades on the short side (and/or buying inverse ETFs), we can not ignore last Friday’s “accumulation day” (higher volume gains) in the market. Nevertheless, it’s important to realize a market bottom is never a one-day event, so we need to see more evidence accumulate over the next two weeks to confirm that an intermediate-term bottom is in place. Specifically, we need to see convincing breakouts of fresh leadership stocks, while the major indices need to avoid printing a bearish “distribution day” (higher volume loss) over the next five days.
 
How To Quickly Find The Best Stocks And Chart Patterns To Buy Now

As stocks attempt to form a significant bottom since bouncing off their November 16 lows, many traders of stocks and ETFs may now be wondering how to find the best, most bullish chart patterns and stocks to buy now. Specifically, swing traders need to know which technical criteria and types of chart patterns they should be looking for, in order to find the best stocks to buy right now.

In the short (3 minute) video below, we will answer the question above by showing you a few basic examples of bullish chart patterns you should be looking for as market conditions improve. We will also show you a quick and easy way to screen for stocks and ETFs that meet our technical criteria for these patterns. Ticker symbols discussed in the video include: $AFFY, $LCC, and $AAPL.

Play video on YouTube by clicking on the following link:

How To Quickly Find The Best Stocks And Chart Patterns To Buy Now
 
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Hot Breakout Setup In An International ETF ($FXI)

Two weeks ago, in our November 14 ETF commentary, we initially pointed out the relative strength of iShares China Xinhua 25 Index ($FXI) and said, "Although the main stock market indexes of the USA have been in a downtrend since mid-September, FXI actually started trending higher right as the domestic markets started selling off...and is now in pullback mode."

In our subsequent November 19 ETF analysis, just a few days later, we revisited the chart pattern of $FXI and said that, "very short-term traders only might consider buying FXI if it moves above the November 16 high of $35.88." Because US stocks had not yet confirmed at least a near-term low had been formed, we passed on "officially" adding this trade setup to our ETF Trade Watchlist. Nevertheless, we still pointed out the trade so that more aggressive, very short-term traders could take advantage of an anticipated "quick pop" is the desired. Fast forwarding to the present, take a look at the updated chart of $FXI below:

121129FXI.png


Note on the chart the level where we initially said aggressive traders could buy above the two-day high (circled in pink). This was due to the relative strength of FXI, a major level of horizontal price support (the blue line), and convergence of the 50 and 200-day moving averages (teal and orange lines respectively). Thereafter, FXI generally trended higher, but not in a very steady fashion.

Yesterday (November 28), like most stocks and ETFs in the market, FXI gapped down sharply lower, but reversed to close at its intraday high and back above its 20-day exponential moving average (beige line). This followed a normal four-day pullback from its November 23 high. This has created an ideal pullback buy setup in FXI, which has a positive reward to risk ratio for swing trade entry above yesterday's high. Regular subscribers to our trading newsletter should note our preset, exact entry, stop, and target prices for this swing trade setup.
 
Why This Week's Trading Will Set The Tone For Rest Of 2012 ($SPY)

Since the last two weeks of December are typically dead in terms of trading volume, there are really only two more “tradeable” weeks remaining in 2012. Therefore, it is fair to say the overall price action of the broad market over the next several days could easily set the tone for the remainder of the year. As such, today’s technical trading commentary will focus on a few key factors to monitor this week in order to help determine whether stocks might finish the year with a bang, fizzle, or plunge.

The potential challenge as we enter the final month of 2012 is that stocks must still contend with an abundance of overhead supply and technical resistance levels. “Overhead supply” is formed by traders who formerly bought near the highs, but did not quickly cut their losses when stocks headed south. Still holding on to these losing positions, these individuals are typically eager to sell into strength of any further broad market gains, simply in the hope of “just breaking even” (learn why hope is a very dangerous emotion for traders). This selling pressure formed by the overhead supply is what makes it difficult for a confirmed down trending market to fully reverse into a new uptrend, at least without a substantial period of correction by time (“back and fill” price action).

With the Nasdaq and S&P 500 still trading below their September 2012 highs by about 5% and 3% respectively, only a sudden surge in institutional buying (high volume) would enable the broad market to rally all the way to new highs in a short period of time. On the daily chart of S&P 500 SPDR ($SPY), a popular ETF proxy for the benchmark S&P 500 Index, we have annotated the key resistance levels to pay attention to this week:

121203SPYdailychart.png


Overall, the month of November was basically a scratch. The main stock market indexes printed significant losses in the first half of the month, then reversed to recover those losses in the latter half of the month. In the end, prices were little changed for the month. Despite this, the accurate signals received from our market timing model enabled us to still score decent gains in November by swing trading on both sides of the market (updated stats of our trading profits through November 2012 will soon be posted on “performance” page of our website).

Our market timing model has been in “buy” mode since November 23, the day it reversed from the previous “sell mode” after receiving signals that a significant market bottom may be forming. We still have two short positions in our model ETF trading portfolio, but the majority weighting of our swing trades (combining ETF and individual stock positions) remains on the long side of the market. Furthermore, if our timing model receives the proper technical signals to shift into a new “confirmed buy” mode, all bets on the short side would be off, and exposure on the long side would also be increased. But for now, maintaining a small percentage allocation of short/bearish exposure may help to reduce overall portfolio risk by basically “hedging” until/unless the downtrend from the September 2012 highs is convincingly reversed by the formation of two “higher lows” and “higher highs” on the daily charts. Trading objectively with a rule-based market timing system removes the guesswork and emotion out of knowing which side of the market to be on, and with how much exposure.

Going into today’s session, last Friday’s new swing trade setup in iShares Poland Index ($EPOL) remains an “official” buy setup with exactly the same trade parameters (subscribers to our swing trading newsletter should note our exact trigger, stop, and target prices for this ETF trade setup on the Watchlist section above). We continue scanning for new ETF trading opportunities, such as buying the incredibly strong iShares Philippines ($EPHE) on a pullback to support. However, remember the best swing trade setups with a positive reward-risk ratio will eventually come to you. Avoid half-baked swing trading setups just for the sake of being in the action. If action is all you’re looking for, go to Vegas and get your fix. But if you’re serious about consistently raking in short-term trading profits over the long-term, you must develop the patience and discipline to follow our proven swing trading system taught every day in this newsletter.
 
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Profit From The “Head & Shoulders” Pattern In This Biotech ETF ($IBB)

In the November 19 issue of our swing trading newsletter, we initially pointed out that iShares Nasdaq Biotechnology ETF ($IBB) may be in the process of forming a bearish “head and shoulders” pattern on its weekly chart. Now, after a month-long bounce off support of its 200-day moving average, $IBB is forming the “right shoulder,” after stalling at resistance of its 50-day moving average the past few days. This is shown on the weekly chart of $IBB below:

121205IBB1.png


Notice how the recent highs of $IBB over the past few days correspond to the highs of the “left shoulder.” The best quality head and shoulders chart patterns should form with a right shoulder that is equal to or less than the high of the left shoulder. For us, a head and shoulders pattern is no longer valid once the right shoulder extends much beyond the high of the left shoulder.

Drilling down to the shorter-term daily chart interval below, notice how the volume was heaviest on the decline from the top of the head to the bottom of the right shoulder. Higher volume on the selloff from the top of the head, followed by lighter volume on the bounce that forms the right shoulder, is what we look for to confirm the pattern:

121205IBB2.png


Based on the weekly and daily chart patterns above, we have officially added $IBB to our watchlist as a potential swing trade setup on the short side. Regular subscribers should note our exact, predefined entry, stop, and target prices in the ETF Trading Watchlist section of today’s newsletter.

We mentioned recently that the broad market was showing signs of weakness during its current counter-trend rally off the lows, and one major concern is the lack of explosive price action in leadership stocks. If we were to focus only on the chart patterns of the major averages when analyzing the market, we would be missing a big piece of the puzzle, which is market leadership.

When our rule-based market timing model shifts to a new “buy” mode after a significant correction, our attention always turns to leadership stocks and how well they are breaking out from valid basing patterns. Are leading stocks break out on strong volume and holding up, or are they breaking out and selling off (false breakouts)? This information is critical to our decision making.

If leadership is strong, we can increase our long exposure, as well as our average share size per trade. But if leadership is weak and the market suffers a few “distribution days” (higher volume declines) over a short period of time, we are then forced to reduce long exposure and look for potential short setups. Though our market timing system is still showing a “buy” signal, we are now seeking the necessary confirmation for it to remain so.
 
How We Made 11% Gain in 4 Days on $QIHU – Trading Strategy Video

In this educational stock trading strategy video, we walk you through the clear, technical criteria that recently prompted us to buy Qihoo 360 Technology Co ($QIHU) for a short-term momentum trade.

We point out the basic, objective technical analysis that prompted us to buy $QIHU when we did, and conclude the video by explaining our rationale for selling the stock 4 days later for a quick 11% gain. Overall market timing strategy for our swing trading methodology is also discussed in the video.

Press the link below to view the YouTube video:

How We Made 11% Gain in 4 Days on $QIHU – Trading Strategy Video

Hope you find the video to be informative.
 
Last edited:
morpheustrading said:
Hello fellow traders,

My name is Deron Wagner and I am a professional trader and author of several trading books. I recently discovered this forum and thought it would be a good place to connect and share ideas with others in the community.

I maintain a free swing trading blog where I post a daily video with my best swing trading stock and ETF picks for the US markets. I also write a plethora of other educational, trading-related articles on a regular basis. I would like to post a link to that daily video somewhere on this side, as I believe it would be of value to fellow swing traders. However, as I am new to this forum, I want to make sure I go about posting in the correct thread so that I don't get flamed. :)

If anyone would be so kind as to point me in the right direction, I would be most appreciative.

Thanks and I look forward to lots of interaction with the community.

Regards,

Deron
Click to expand...


What is your blog URL?
 
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