Over the past few months, PowerShares Aerospace & Defense ($PPA) has shown great relative strength to the benchmark S&P 500 Index.
On the daily chart below, notice that $PPA has broken out twice over the past few months, setting higher highs and higher lows along the way.
During that same period, the S&P 500 SPDR ($SPY) has basically gone nowhere:
If a stock or ETF is so strong that is manages to continue trending higher, even while the broad market is going sideways, that equity typically surges much higher when the major indices eventually rally as well.
As detailed in my book, Trading ETFs: Gaining An Edge With Technical Analysis, assessing the relative strength of an ETF versus the main stock market indexes is the key element behind my proven ETF trading strategy.
Since breaking out to new highs three weeks ago, $PPA has pulled back to support of its rising 10-week moving average, which has held up all year during every pullback (10-week MA is roughly the same as the 50-day MA).
This rock-solid support of the 10-week moving average is shown on the weekly chart below:
Because of the current pullback to the 10-week MA, we expect the price action to hold at or around this level over the next week or two before the uptrend resumes.
As such, $PPA now provides us with a low-risk buy entry point, and we are stalking $PPA for potential swing trade entry going into today’s session.
Although this $PPA trade may not lead us to a whopping 40% gain, like the Guggenheim Solar ETF ($TAN) trade we finally closed this week, the current pullback provides us with a positive reward-risk ratio and clearly defined protective stop price below major support.
As always, paid subscribers of The Wagner Daily newsletter should note our preset buy, stop, and target prices for this new ETF trade setup in the “Watchlist” section of today’s report.
Which other ETFs have been showing clear relative strength lately? Got any new setups you really like? Drop us your thoughts below.