Since selling pressure hit the market in early May, the Direxion Financial Bear 3x ETF (FAZ) has shown relative strength, as it was one of the first inverse ETFs to break out during the selloff. Yesterday, FAZ managed to hold support at Friday’s low as financials remained weak. An undercut of the 10-day MA and the formation of a reversal candle could offer a buying opportunity in this ETF. We will be monitoring FAZ closely for a potential long entry.
On May 9th, the ProShares UltraShort Euro ETF (EUO) rallied above key resistance at $20.00. Since then, EUO set a new swing high near $21.00 and on Friday began showing signs of weakness as it sold off for the first time in nearly three weeks. EUO may offer a buying opportunity on a pullback near its 20-day EMA. Ideally, we would like to see EUO form a reversal candle near this key mark, as this would offer a possible pivot point to open a long position. We will continue to monitor EUO for a possible entry.
Since March of this year, the ProShares UltraShort Silver ETF (ZSL) has reversed its downtrend and reclaimed the 20-day, 50-day and 200-day moving averages. A pullback to and undercut of the 200-day MA could present a buying opportunity for this ETF.
In the May 9th and 14th editions of the Wagner daily we discussed the head and shoulders pattern that was forming on the small-cap Russell 2000. In the May 9th newsletter we stated, “if the Russell 2000 loses support of the neckline at 785, then the predicted selloff would be to 720. We will be monitoring the Russell carefully, as its next test of the 785 mark could result in the loss of support and a significant move lower”. On May 14th we commented that, “(a move by IWM) below Friday’s low of $78.42 could result in a break of the neckline of the head and shoulders pattern. A drop below this key market would likely result in a quick move to the 200-day MA for IWM. Yesterday, IWM did in fact breach its neckline and now appears headed for the 200-day MA. In all likelihood, IWM will find support at its 200-day MA. Typically, when a neckline of a head and shoulders pattern is broken, a subsequent bounce will occur back up into resistance near the neckline. This bounce generally results in another shorting opportunity.
Yesterday, on a burst of volume, the Market Vectors Retail ETF (RTH) formed a bearish reversal candle as it rallied to test resistance at its 50-day MA before fading into the close. A volume fueled move below yesterday’s low of 40.90 could offer a short entry trigger for this ETF. We are placing RTH on the watchlist. Trade details are posted in the watchlist section of the newsletter.
Since setting a new swing high on May 9th, the Direxion Daily Semiconductor 3x Bear ETF (SOXS) has been riding support along its 10-day moving average. Yesterday, on a pickup in volume, SOXS recovered to close near session highs. A move above the three day high of $41.36 could present a buying opportunity in this ETF. We are placing SOXS on the watchlist. Trade details are posted in the watchlist segment of the newsletter.
Since March of this year, the iShares Russell 2000 Index Trust (IWM) has tested support near $78.00, and in the process formed a head and shoulders like pattern. A move below Friday’s low of $78.42 could result in a break of the neckline of the head and shoulders pattern. A drop below this key market would likely result in a quick move to the 200-day MA for IWM.
Over the past five sessions, the Direxion Financial Bear 3x Shares ETF (FAZ) has been consolidating at support of its 20-day and 50-day moving averages. FAZ has also tested resistance at $23.70 three times in the past five weeks. A move above the two day high of $23.69 could present a buying opportunity in this inverse ETF. We are placing FAZ on the watchlist. Trade details are posted in the watchlist section of the newsletter.
Since mid April, the Market Vectors Vietnam ETF (VNM) has been setting a sequence of higher lows, as it has consolidated along its 20-day EMA. This is an excellent exhibition of relative strength since most ETFs have lost support of both their 20-day and 50-day moving averages during the most recent bout of selling. If the market posts a buy signal and VNM is able to maintain support at the 20-day EMA, it could offer a buying opportunity on a move above resistance near $21.30.
Since February of this year, the small-cap Russell 2000 has struggled to move to higher ground and has formed a Head and Shoulders like pattern. Head and Shoulders formations are considered a bearish reversal pattern (when an established uptrend is in place) and occur when price action in the market forms a technical pattern that visually looks like a human head and shoulders. In the chart of the small-cap Russell 2000 below, this pattern formation is quite evident. Notice the symmetry between the left and right shoulders. As of yesterday’s close, the right shoulder has been developing for 21 days and is now just three days shy of the 24 days it took the left shoulder to develop. Also notice the horizontal line labeled, “neckline”. This line represents the final level of support, which if breached, should result in a significant move lower in the index, stock, or ETF. Once support of the neckline is breached, the predicted decline in the index is the distance from the top of the head to the neckline (blue vertical line) projected downward (black vertical line). In this example, if the Russell 2000 loses support of the neckline at 785, then the predicted selloff would be to 720. We will be monitoring the Russell carefully, as its next test of the 785 mark could result in the loss of support and a significant move lower.