Since March or 2011, the iShares MSCI Japan Index Fund (EWJ) has been in a major downtrend. On Wednesday, this ETF rallied above its down-trending 200-day MA for the first time since July of last year. However, yesterday, EWJ struggled to hold support of this key mark. EWJ could provide a shorting opportunity on a rally into resistance of its downtrend line or if it loses support of the 200-day MA on a spike in volume. Although we’re still bullish on the market, EWJ could provide a shorting opportunity should the market correct for a few sessions. Regardless, when the market does see it’s next reversal, ETFs that are rallying into resistance of long term downtrend lines and down-sloping 200-day MAs will generally provide the best shorting opportunities.
Since October, 2011, the UltraShort Lehman 20yr + Treasury Fund (TBT) has been consolidating between $18.00 and $19.75, and appears to be forming a base from which to launch a possible reversal move. Further, TBT has also been setting a sequence a higher-lows over the past several weeks. If TBT can move above the two day high of $19.50 on a pickup in volume, it may present a buying opportunity. We are monitoring TBT for as a potential long candidate.
In yesterday’s newsletter (February 7, 2012), we stated that “an undercut of the 20-day EMA could provide a possible buy entry point for IAU”. However, it appears that IAU may have completed the pullback with an undercut of the 10-day MA. As we have discussed in the past, if an ETF enters a strong trend, quite often the 10-day will serve as support for an extended period of time. Tuesday’s reversal in IAU has now provided us with a trigger to enter the trade. A move above the three day high of $17.07 may provide a buying opportunity in this ETF. We are placing IAU on the watchlist. Trade details are available to our clients in the watchlist section of the newsletter.
Yesterday, on a pickup in volume, the SPDR S&P Oil & Gas Exploration ETF (XOP) rallied to close near session highs and within striking distance of key resistance. If XOP can rally above resistance of the January 26, 2011 high of $57.32, it could provide an excellent buying opportunity. We are monitoring this ETF carefully for a possible long entry.
Given Friday’s strong breakout price action it is probably a good time to review key resistance levels. Last week we stated that we felt the market appeared likely to rally and overcut last summer’s highs. Below are charts of the Nasdaq, S&P 500 and DJIA. As you will notice, we are now at or near key resistance levels on all three indices. It is impressive that the Nasdaq set a fresh 11 year high on Friday but it is also important to note that none of the other major indices can make the same claim, and are still below key resistance.
Although IYZ has been lagging some of our other trades, recently it has begun to show signs of relative strength. If IYZ puts in an inside day on Friday, it could very well break above resistance next week. It would be ideal if IYZ could form a bullish, mini-cup and handle pattern, as the cup is already in place. It’s also not out of the realm of possibility that IYZ could gap up to complete its move.
Yesterday, on an uptick in volume, the ProShares UltraShort Euro (EUO) formed a reversal candle and held support at the 3 day low. If EUO can consolidate for several days near the current level, it could provide a buying opportunity above the 2-day high of $19.94. We will be monitoring this ETF closely for a potential long entry.
Over the past twenty trading sessions the ProShares Ultra Dow Jones AIG Crude ETF (UCO) has been quietly exhibiting a bearish divergence with the S&P 500. Should the broad market turn lower for a few days, UCO could lose support due to its relative weakness. In addition, UCO formed a bearish reversal candle yesterday on a dramatic spike in volume. A drop below yesterday’s low of $39.79 could present a shorting opportunity. We like this short setup and are adding it to the watchlist. Trade details are provided in the watchlist section of the newsletter. The fact that commodities are not as highly correlated to the market is what allows us to consider this counter-trend setup. For those of you trading qualified accounts or those who cannot borrow shares to short UCO, buying the PowerShares DB Crude Oil Double Short (DTO) is the inverse alternative to shorting UCO.
Yesterday, on an uptick in volume, the Direxion Daily Semiconductor 3x Bull ETF (SOXL) formed a bullish reversal candle. SOXL gapped down at the open, undercut its 10-day and 200-day moving averages but by the closing bell had almost reclaimed both key marks. Further, SOXL closed near session highs. A move above yesterday’s high of $36.62 could provide a buy entry for this ETF. We are placing SOXL on the watchlist. Trade details are posted in the watchlist section of the newsletter.
Several days ago we sold our long position in the iShares Dow Jones Real Estate Index Fund (IYR) as it came within 30 cents of its target. Over the past two days IYR has be consolidating near the price level that we exited. During strong uptrends ETFs tend to “hug” the 10-day moving average. The possibility exists that IYR may not retrace significantly before potentially going higher. We will be watching this ETF closely for a possible buy entry on an undercut of the 10-day moving average or a pullback to the 20-day EMA.