The First Trust Dow Jones Internet ETF (FDN) has been consolidating just above its 20-day EMA for the past four sessions. A move above the four day high of $32.89 could provide a buy entry trigger for FDN. Yesterday, the iShares MSCI All Peru Capped Index ETF (EPU) formed a massive reversal candle, as it undercut 200-day MA, filled the gap formed on Tuesday, and recovered to close near session highs. Notice that EPU is also on the precipice of rallying above its long term downtrend line. A volume fueled move above yesterday’s high of $40.40 could present a long opportunity in this ETF. Ideally, we would like to see EPU consolidate for several days prior to an attempted move higher. We are closely monitoring EPU as a possible trend reversal candidate.
Although we currently hold a bullish bias, the Market Vectors Junior Gold Miners ETF (GDXJ) could present a shorting opportunity under the right circumstances. Since bottoming on December 29th, this ETF has rallied back above resistance of its 20-day EMA. Given the current bullish market conditions, we would only consider this short if it rallies, overcuts and stalls near the 50-day MA. This level also corresponds with the long term down trend line (see chart). Please note, that for the moment, we are not inclined to be aggressive on the short side of the market. Market conditions would have to shift significantly for our bias to become bearish.
Since the pullback began on December 29th, the Direxion Daily Gold Miners 3x Bear ETF (DUST) has pulled back into support of its 50-day MA. If DUST can clear $38.00 on a burst of volume, it could be a potential long candidate. Further, a move above $39.00 could provide a secondary entry point or a safe place to acquire additional shares. It could make sense to “leg” into the position by taking a partial position above $38.00 and adding to it above the next resistance level. Entering small size above different resistance levels is a good strategy in a choppy market, as it minimizes risk if the initial entry fails. We are placing DUST on the Watchlist. Trade details are posted for our subscribers in the watchlist segment of the newsletter (note the two trigger prices and stops).
On Friday, via intraday alert, we closed our long position in EUO and bagged a 1.6% gain on capital. We decided to exit the position since EUO has gapped up three consecutive sessions. We are playing the odds for a pullback in this ETF because, statistically, EUO has rarely rallied in the wake of three consecutive gap ups. Further, a 1.6% addition to capital is significant in what has been a rough trading environment. We will look to re-enter EUO if it pulls back.
Over the past three sessions, the iShares Russell 1000 Index ETF (IWB) has been consolidating just above its 200-day MA. Yesterday, for the second time in a row, IWB undercut this key moving average, but reversed to close near session highs. Further, the price action in IWB is beginning to show a bullish divergence with the Accumulation-Distribution Histogram. As Accumulation-Distribution has set a higher high, IWB has not, which suggests institutional accumulation. We are placing IWB on the watchlist. Trade details are posted for our subscribing members in the watchlist section of the newsletter.
Yesterday, on an uptick in volume, the Direxion Daily Gold Miners 3x Bear ETF (DUST) tested support at the 50-day MA, but then reversed to close in the upper third of the day’s trading range. Ideally, we would like to see an inside candle form prior to DUST attempting a possible move higher. As an alternative, an undercut of the 50-day MA and the formation of another reversal candle would also provide a potential long setup for this ETF. The entry under either of these scenarios would be a move above yesterday’s high of $37.76.
The charts below provide an excellent visual of the key resistance levels now facing the major indices. Notice that the DJIA is showing the most strength and faces the least resistance as it rallies to the highs set last summer. However, the Nasdaq, Russell 2000 and S&P MidCap 400 indices face formidable resistance between current levels and the highs of last year.
On Friday we entered a long position in the iShares DJ US Telecom Sector ETF (IYZ) as it broke above the six day high, on its biggest uptick in volume in nearly two weeks. Normally, we would not have entered this trade on the Friday of a holiday weekend, but IYZ had recently undercut all of its moving averages and broke out on reasonably high volume. In combination, both of these factors provide evidence that the trade is much more likely to hold. Trade details are available to our subscribers in the open positions section of the newsletter. This trade was sent via intraday alert and was not on the watchlist.
In light of yesterday’s performance, the DJIA and the SPY are both within a few points of breaking above the neckline of an inverted head and shoulders pattern. The same holds true for the IYT. IYT is still on the watchlist. The charts below are self explanatory.
Yesterday, for the fourth time since late October, the S&P 500 was unable to reclaim its 200-day MA. If the broad market is to move to higher ground, the S&P must clear this key mark. Yesterday’s action in this index provides an excellent demonstration of the importance of the 200-day MA. The S&P now appears to have drawn two important “lines in the sand”. The next big move in this index will likely be determined by whether it breaks through resistance at 1,270 first or loses support at 1,202 first.