Since August 9, the iShares Nasdaq Biotechnology Index Fund ETF ($IBB) has been on the ETF trading watchlist of The Wagner Daily trading newsletter as a potential pullback trade entry. Though it has not yet traded through our preset trigger price for buy entry, it formed a bullish hammer candlestick pattern yesterday, which could lead to upside follow-through in today’s session. Further, it “undercut” (briefly dipped below) near-term support of its 20-day exponential moving average, as well as the low of its six-day trading range. This is illustrated on the daily chart pattern of IBB below:
When an ETF “undercuts” a key moving average, as $IBB did yesterday, this serves to sweep poorly placed stops and shake the “weak hands” out of the trade. This has the effect of absorbing overhead supply, thereby clearing the way for the equity to move higher. When a bullish reversal candle forms after a stock or ETF has “undercut” a key level of support, we refer to this type of buy entry as a pullback entry (which is one of the preset technical scans on our new technical ETF and stock screener). Pullback entries develop when an ETF or stock gently retraces from the most recent “swing high” of its uptrend and finds technical support at an area of horizontal price support and/or a key moving average. After this happens, it is important to wait for the ETF to form a “pivot,” which allows for a relatively low-risk pullback entry for swing trading. The best buy pivots tend to occur when an ETF or stock forms a bullish reversal candles (such as a “hammer”) that sharply undercut a key support level on an intraday basis, but subsequently recovers to close near the high of the day. When this occurs, our trigger for buy entry of at least partial share size is simply above the high of the reversal candle. Because of the combined “undercut” with reveral candle that $IBB formed yesterday, subscribers to The Wagner Daily should note in today’s ETF trading watchlist section of the newsletter that we have lowered our exact trigger price for buy entry of this trade setup.
Although the Nasdaq, S&P 500, and Dow Jones Industrial Average technically remain in their nearly week-long sideways consolidation patterns, yesterday was the second consecutive day that the broad market rallied late in the day to close near session highs. This type of price action is considered bullish, and suggests that market bulls are buying into weakness. The main thing missing has been the presence of institutional participation, but if volume suddenly comes back into the market, stocks could easily break out above the highs of their holding patterns and resume the rally attempt that began two weeks ago.
Do you like buying pullbacks of strong ETFs and stocks? We’d love to hear your feedback in the comments below.
