The S&P 500 undercut major support of its 2002 low last week, giving traders and investors an impetus to start buying stocks again, at least in the near term. After briefly dipping below support of its 2002 low, the S&P 500 reversed and ripped higher in the days that followed. This enabled the benchmark index to move back above resistance of its prior lows from October 2008, thereby changing my overall intermediate-term bias to cautiously bullish. In the short term, however, I'm more neutral on market direction because total market volume throughout the past week's rally was pretty light.
Over the next week, I'd like to see the major indices pull back to support of their 20-period exponential moving averages on the hourly charts (20-EMA/60-minute). The pre-Thanksgiving rally on Nov. 26 was bullish because it pushed the main stock market indices back above their October 2008 lows. It's important to note, however, that the rally occurred on much lighter-than-average volume. As such, a pullback that successfully tests a key short-term moving average such as the 20-EMA/60-minute would be ideal. If that occurs, I am looking at a potential buy entry into the Ultra MidCap 400 ProShares (MVV - commentary - Cramer's Take), which is showing the most relative strength of the broad-based ETFs. Below, I've circled the projected buy point I'm monitoring.
Even though most ETFs have rallied sharply off their lows over the past week, very few tradable chart patterns have developed. If price consolidation and/or a pullback develops, we'll begin to see better chart patterns emerge.
ETFs Short ETFs Can Work for the Vigilant Bear 11/11/2008 11:46 AM EST This can be a good choice for small investors who feel the market will fall - but keep an eye on it.
At the time of publication, Wagner was long the PowerShares DB Gold Double Long.
Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He is the author of the new book, Trading ETFs: Gaining An Edge With Technical Analysis, and he also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters, available at morpheustrading.com.
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