October 02, 2009
Where we have been, where we are now, and where we are going!
Hello and welcome to the first edition to ETF Technical Trader! It could not be a better time to start writing a newsletter covering the stock market. It could be argued that the markets are about to change trends.
In previous commentaries, I have said that 9/16/09 was a potential turn date plus or minus a couple of days. Given the time it took to go from the top in October 2007 to the low of March 2009, the current rise from that low to this September, took a Fibonacci 38.2% of the time of the previous decline. We did see a top on 9/17/09 in some Index Funds and on 9/23/09 in others. Whether that was actually a top, we will have to wait a little longer for confirmation.
There were divergences between the indicators and price for some time. That means that the price had been rising while the indicators were decreasing. This was a warning of an upcoming potential top. There was also a decreasing volume as the indexes were rising in price. That is of the reasons I kept raising my stop losses and keeping them relatively tight.
The main signal of a potential top and trend change was the key outside reversal day. That is when price breaks above the high of the previous day, but also breaks and closes below the previous day’s low. That is what happened on 9/23/09, which was also the top in some of the Index Funds. We are not sure of a top at this moment however.
The price action in the last 2 weeks did stop us out on many of our trades for very good profits. I was going to write for you to wait before diving into the Bear Index Funds, however, I had buy recommendation targets for these funds and the targets were hit in all those funds 10/1/09. We also took positions in the Crude Oil, Gold, and Silver Funds in the last week and a half of September.
Any one that is long in this market has to be very careful. Most people still have a sore spot concerning their portfolios. The indexes have regained 50% of their value; however, most people have not regained that much in their own portfolios. What I am trying to say is that many people do not have the stomach for risk anymore. If the market looks to be starting another decline, there could be a mass exodus in the market. We just thought 2008 and 2009 were bad! That is not a guarantee, just a warning.
I listed the stats of the previous month to help you see how we have done. These are the funds we had positions in with the percent profit we took on each trade.
DIA 12.90%
SPY 13.69%
QQQQ 14.73%
DDM 28.66%
MVV 42.32%
QLD 30.94%
SSO 29.52%
TNA 57.33%
UVT 42.18%
XLF 22.96%
OIH 2.43%
GLD 4.49%
SLV 15.23%
Below are the funds we took a loss on.
DIG -3.64%
SCO -9.22%
Below are the funds we have old positions with the stop loss listed.
TLT 98.14
Below are new positions with the entry price and stop loss listed.
DUG 14.57, 13.59
DUG 15.00 13.59
SCO 18.20, 15.66
GLL 13.01, 12.40
ZSL 5.50, 4.97
DXD 35.26, 33.71
SDS 41.66, 37.70
QID 23.77, 22.06
MZZ 26.61, 24.05
TWM 29.46, 29.46
TZA 12.72, 10.95
I will not discuss my analysis of each fund. I will cover only one fund in each category for you to get the main point in direction and potential move for the sector with that one fund. I will use SPY for the analysis of the entire Index Funds. I will use XLF and TLT to cover the Financial Funds. I will use DUG for the Oil funds. I will use GLL and ZSL for the Gold and Silver Funds respectively. So, let’s get started!
Speaking of trend line support, there is a very critical trend line drawn through the 3/6/09 and 7/8/09 lows. You need to watch that that very closely, I know I will. The 55-day EMA is also tracking just above that trend line. The price should break that trend line first, but key will be when the 55-EMA actually crosses below that trend line. It has been above the trend line ever since the 3/6/09 bottom. Therefore, a break of that trend line with the 55-day EMA should break the upward trend’s back.
You cannot see it on this chart, but volume as broken its 50-day average significantly only on down days for the whole month of September. This definitely indicates distribution as the index started its topping out process.
The MACD histogram has now turned negative. The MACD oscillator is still above zero; however, it has turned down. The Slow Stochastic is overbought, but it has turned negative. It will be a better confirmation of a trend change when it crosses below the 80 line. However, if one is to wait on a cross of that line to exit a trade will leave a lot of money on the table.
With that said, you should have exited SPY and the other Bull Index Funds on my recommendation. The major markets appear to be changing trend. I actually made buy recommendations on Bear Index Funds and took positions on 10/1/09 when price hit those targets.
Everything I mentioned above concerning the indicators and volume, also applies to the Financials. The same recommendations apply here also. You should not invest in financial stocks of any kind right now.
TLT has shown some strength the last couple of weeks. This may be due to a flight to quality as the major indexes have been selling off. Through out the month of September, price tested the support of the 55-day EMA and held on.
One of the cautious statements I have made on ETF-Technical-Analysis.com, is that the price action has been overlapping, which indicates a corrective pattern. Therefore, TLT should find resistance and head to new lows.
Where is that resistance? There is a potential of 101.00 as being a good target for TLT. There are several signs that point to that level. I have drawn two trend lines, one connecting the lows of 6/10/09 and 8/7/09. The other connects the lows of 8/7/09 and 9/9/09. The parallel of those two lines intersect jus below 101.00. Place the parallel line of the first line so that it crosses the top of 7/8/09. Place the parallel line of the second line so that it crosses the top of 9/2/09.
Another interesting item is the horizontal support/resistance line that held TLT up through the first four months of 2009. That shelf was strong support until it finally broke during the last week of April. That support is now resistance. Since it was support for so long and which price tested so many times during that period, I expect it to be very strong resistance. That resistance is around the 101.00 level. Hmmm!
I promise you I will watch TLT closely. The price is not far from that level now. I will continue to watch the price action through the candlestick patterns for a signal of a top.
DUG has made another higher high and we have taken two separate positions. I have placed a stop at 13.59; and will recommend raising that stop when needed. Keep an eye on My Blog for changes in my recommendation.
The price has cleared several trend lines and the indicators have turned positive. The Slow Stochastic is oversold, but has turned positive and turning up. The MACD Oscillator is still below zero, however, it has tuned positive on the MACD Histogram indicating that it is turning up and heading towards the zero line.
Volume is still landing below the 50-day average; however, there volume has increased, especially on the up days. Actually, 10 out of the last 12 days since the bottom on 9/17/09 have been up. We need significantly higher volume, especially if price break resistance levels.
Those resistance levels are 17, 18, and 21. I expect the 17 and 18 levels should be relatively easy to break and should see higher volume as it does so.
GLL has move side ways since the first week of September. We do have a position and I may recommend adding another position when price clears another level. Keep in touch with My Blog to keep up with my changes and updates.
Volume during this sideways price action has consistently been above the 50-day average with the high volume occurring on up days. That is a good sign, for it may indicate that traders are accumulating shares. We need a significant increase in volume if price clears some overhead resistance.
The indicators are showing some positive signs. The Slow Stochastic is oversold, but has turned positive and is pointing upwards. MACD Oscillator is well below the zero line, however the MACD Histogram has turned positive with the Oscillator is turning upwards.
There is one more trend line above the price right now and we need to see broken to have strong confidence in the change in trend. Another significant resistance is the horizontal line drawn at the 14.00 level. This line was strong support for GLL since March 2009. It was broken in the beginning of September and now has become strong resistance. That line held prices for several months as price tested it several time. Breaking that resistance will be significant and should see strong volume if it is broken. I will be watching that level very closely.
Everybody is expecting gold to go higher, for everyone believes the government stimulus has to cause inflation. Everybody is recommending buying gold. I am a contrarian-investor and am skeptical concerning the direction of any type of investment when everybody is jumping onboard.
We have a position in ZSL and I may soon be recommending adding to that position. The price action has been sideways for the entire month of September. It looks like there may be some accumulation going own among traders. Two things need to happen that would strongly indicate a change in trend.
The first thing is a trend line break. I have drawn a trend line connecting the tops of 7/13/98 and 8/19/09. A price break of that line with high volume will be encouraging. The second is significant. There was a shelf of support, which ran under the lows 6/2/09 and 8/13/09. That horizontal support is now resistance. A break of that resistance with high volume will be significant. I will watch this level very closely.
Right now, it is encouraging that the indicators are looking stronger. Both, the MACD and Slow Stochastic are move upwards. I look for these two indicators to continue to show strength as the price heads higher.
We are at a very critical point in the markets. The next week should show its hand as to which direction we are heading in the market. I believe lower prices are in store by what indications I see, however we will know for sure soon.
Just as a reminder, continue to come back to www.etf-technical-analysis.com to view My Blog to keep a close eye on any changes or updates I may make in my recommendations. I will blog my recommendations before I will post the changes to the chart and analysis section for each fund I follow. Therefore, do not get left behind, stay current on my recommendations by checking my blog daily.
Talk to you next month! You can contact me anytime if needed when you have questions concerning my analysis or recommendation. You can go to Contact Us to fill out the required blocks and then post your comments before sending.
Be a smart trader!
Craig Wells