We stopped out of $EPI last week just below break-even when it failed to hold the 20-day EMA. We still like the weekly and daily chart in $EPI; however, the charts of the iPath MSCI India ($INP) are showing a bit more relative strength, so we plan to re-enter India through $INP. Yes, $INP trades with lower volume, but its relative strength over the other ETFs is clear. $INP tested the highs of 2012 while $EPI stalled 5% short of the 2012 high.
We continue to monitor the iShares FTSE China 25 Index Fund ($FXI) for a low risk entry point on a pullback to the 50-day moving average. On the weekly chart below, the price action has clipped the 10-week moving average, which is basically the same as the 50-day MA on a daily chart.
$SEA buy entry triggered Friday afternoon above the prior day’s high on a pick up in volume. $EWS recovered nicely as well. We plan to add to our position in $EWS on a breakout (see watchlist above for details). As mentioned in Friday’s report, we will not be using the 5-minute rule on the $EWJ buy setup.On Friday morning, the Nasdaq Composite stalled at the prior high of last September and traded in a tight range the rest of day. It will be interesting to see how the Nasdaq reacts to the 3196 level this week. $AAPL may be the key to a successful Nasdaq breakout, and could provide a much needed spark with a sharp reversal back above the 50-day MA.
We have seen some rotation as late, with a few stocks and ETFs pulling back sharply the past few days, such as $EWI, $EWP, and $FXI. But overall, leadership stocks have held up well and the market has been quite resilient in fighting off distribution. We continue to see a dry up in buy setups, but that is to be expected at some point with many stocks and ETFs extended from the January run up.We canceled the $ITB and $EEM setups for now, but we will continue to monitor the action for a logical entry point. We stopped out of $EPI near break-even. $GXG stopped us out of our remaining 100 shares
There are a few new official buy setups on today’s watchlist above. $KOL stopped us out of our remaining shares yesterday. We see no reason to re-enter right now, as the price must first climb back above $25.00 and set a higher low.iShares MSCI Japan ($EWJ) broke out from a four week base on a pick up in volume Wednesday.
As long as the distribution days do not mount and stocks continue to hold up, then we do not mind the market pulling back for few days.After breaking out from a three-month long base in December, iShares MSCI Emerging Markets Index Fund ($EEM) rallied about 10% to $45 before stalling out. During the past few weeks $EEM has pulled back gently off the highs in orderly fashion, and is now attempting to set a higher swing low within the base.
It looks like our call to tighten up stops over the weekend was the right thing to do. We stopped out of $KBE and $XHB for small gains in the model ETF portfolio. With the market printing back to back reversal candles, the volatility has definitely picked up.As always, we will continue reacting to price action in the market, rather than trying to predict it. Our disciplined, rule-based market timing system remains on a buy signal, so we still expect any pullback to be short-lived. But all bets are off on the long side if higher volume selling starts entering the market.The back to back reversal candles created a few false breakouts in ETFs that we are monitoring. iShares NASDAQ Biotechnology Index ($IBB broke out from a tight-ranged handle on Friday but failed to follow through:
Although Friday’s action was bullish, we continue to trail tight stops to reduce risk and lock in gains when possible. Many stops are placed below the 20-day EMA, which should provide support during any pullback in the market.Can a market continue to rally while in overbought territory? The chart below of the S&P 500 is from 2007, where the S&P rallied for several months without breaking the 10-day MA.
Due to yesterday’s distribution, we decided to tighten up stops on several positions and reduce share size in our weaker holdings ($EWT, $GXG, and $KOL). We plan to sell half of $GXG and $KOL on the open simply to reduce our size. We also have a very tight stop in place on half of $EWT. Stops in $RSX, $EPI, and $EWS are unchanged, as we do not mind holding these positions during a market pullback.When swing trading with the trend, we feel that it is an absolute must to focus on reacting to and not predicting market action. So, if we change our mind about a position or stop placement, it is because we are constantly trying to manage risk to keep in line with the market. The goal is to always go with the flow and process market information to avoid sticking to opinions. The only good stocks or ETFs are the ones that go up.The bullish pennant formation in $EWS is still intact and could potentially breakout any day now.
$EWS was added to the ETF portfolio yesterday, as it triggered the buy entry on a decent pick up in volume. After further analysis, we lowered the stop in $XHB to give the trade some breathing room. We want to avoid getting stopped out on a one or two day shakeout below the rising 10-day MA, so our stop is now below the 20-day EMA, minus some wiggle room. Our stop remains tight in $RWO, due to the lack of extension from the breakout pivot.Our scans have failed to produce much in the way of actionable setups the past two days. As for potential setups that might be a few weeks away from triggering, we have the iShares MSCI Indonesia ($EIDO), which is consolidating in a tight range on the weekly chart after breaking the downtrend line.