Our pullback buy limit orders in $TAN and $SMH triggered on the open and reversed higher to close in the money. The plan is to keep the stops on both positions loose for one more day and adjust them over the long weekend. $TAN held support of the 10-day MA, which is where stocks or ETFs will often find support in a very strong uptrend.
Now that the stock market is apparently entering short-term correction mode, we have begun scanning for potential pullback entry points in stocks and ETFs with the most relative strength to the broad market. Two such ETFs are Market Vectors Semiconductor ETF ($SMH) and Guggenheim Solar ETF ($TAN).
All major averages continue to hold above their steep, short-term uptrend lines. The daily chart of the S&P 500 shows the price action in a srong uptrend, especially since breaking above 1,600. A break of the uptrend line could lead to a test of the 10-day MA, which is currently around 1,650.
Energy Select Sector SPDR ($XLE) was added to the model portfolio yesterday, as it triggered a buy entry on the open. $XLE followed through on last week’s breakout with a solid 1.5% move yesterday. iShares MSCI Indonesia ($EIDO) broke out to new highs yesterday as well, and is in good shape. Claymore/AlphaShares China Real Estate ETF ($TAO) is forming a cup and handle type pattern on the daily chart below. We are already long $TAO (with partial size) from a pullback to the 10-day MA on May 1. On a recent pullback, $TAO held support of the rising 20-day EMA and has pushed higher.
The latest industry to demonstrate bullish sector rotation in this current rally is energy (oil and gas), which is showing the same signs of institutional money flow that semiconductors began exhibiting before the group took off last month. Last week, several energy ETFs broke out above key levels of horizontal price resistance and are now set up for momentum swing trades. Of those ETFs that broke out, the one with the best long-term chart pattern is the S&P Select Energy SPDR ($XLE). On the long-term monthly chart below, notice that $XLE just broke out above resistance of its prior highs from 2011 (which is not readily apparent on the shorter-term daily chart interval)
For several months prior to entering this trade, we had been closely monitoring the price action of SPDR Gold Trust ($GLD), an ETF proxy for the price of spot gold. Specifically, we were expecting $GLD to eventually break down below major horizontal price support around the $150 level. That breakdown finally occurred on April 12, which led to a massive drop of 13% over the course of just two days. But since the April 12 decline was so large, and because we run an end-of-day swing trading service, we were unable to immediately take advantage of selling short the breakdown in $GLD (or buying the breakout in $DZZ). However, we were not really concerned because we knew we would probably get a second chance.
Along with the market, most ETFs are a bit extended in our scans and may need some time to rest. Although the setups have dried up this past week, we did notice some bullish patterns developing on the monthly chart of energy ETFs $IEO and $XES. iShares Dow Jones US Oil & Gas Exploration ETF ($IEO) cleared the monthly downtrend line in January and has since consolidated in a fairly tight range. If $IEO can clear $75, then the next stop will be the prior highs of 2008, around $86.
SPDR Gold Trust ETF ($GLD) broke a short-term support level at 139.50 and is beginning to break down on the hourly chart with lower highs and lower lows in place. The daily chart shows the declining 20-day EMA around 141.00, which should provide resistance on any bounce.We have already established a short position in $GLD by going long the leveraged Gold Double Short ETN ($DZZ) on May 1. We are looking for a test of the prior swing high as the target. Along with our short in gold, we are currently long ETFs $TAO, $UNG, and $EIDO. $TAO is in pullback mode the past few days and could present us with a low risk entry to add to the position later this week or early next week. $UNG is trying to bounce after last week’s shakeout below the 50-day MA. We may see $UNG settle in to a tight range this week and breakout above this week’s high and the 50-day MA next week. $EIDO has yet to extend from the breakout pivot, but the price action has formed a bullish, base on base pattern since the beginning of March and could be ready to breakout later this week.
$SMH hit our protective stop and we are out with an $1,100 gain on a 9% move. $SMH finally reversed on the hourly chart yesterday, breaking the 20-period EMA and the steep uptrend line. The next stop for $SMH could be the 10-day moving average, around $38. iShares Dow Jones Transportation Average ($IYT) recently broke out from a bullish, six-week base at the highs. It is a bit too extended to purchase now, but a pull back to the prior breakout level around $112 could present us with a low-risk pullback entry.
In the May 10 issue of The Wagner Daily, we pointed out the bearish “shooting star” candlestick pattern PowerShares QQQ Trust ($QQQ), a popular ETF that tracks the Nasdaq 100 Index, formed on May 9. We then said the formation of such a pattern is often a warning sign to the bulls that stocks may be running out of gas in the near-term. Although the broad market followed up with a solid day of gains in the following session, the signal is still valid because $QQQ failed to close above the intraday high of the May 9 session that formed a “shooting star:”