Health Care ETFs Perk Up

Global Solar Energy

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Source: TradeStation

Notice how TAN quickly reversed higher after pulling back to kiss the blue, dashed horizontal line, which represents prior resistance of the July 17 high (circled in pink). This is a great example of the most basic tenet of technical analysis; a prior level of resistance becomes the new level of support, after the resistance is broken.

Several of the fixed-income (bond) ETFs broke out above resistance over the past week, pointing to a renewed "flight to quality" on the part of investors and traders. One of the most popular fixed-income ETFs is the iShares Lehman 20+ Year T-bond Fund (TLT - commentary - Cramer's Take), which gapped up to break out above a key area of resistance on Aug. 25.

Because it has not yet moved too far above the breakout level, a new long entry in TLT is still okay, anywhere below the $94.75 area. With a protective stop placed just below the breakout level, around the $93.25 area, a positive reward/risk ratio can be achieved. If the Aug. 25 breakout commences a new uptrend, you'll be positioned at a good price level that allows for holding through subsequent pullbacks.

Although the fixed-income ETFs generally have low volatility (Average True Ranges), don't forget they also distribute substantial dividend payments on a regular basis, the same as if you owned individual bonds.

At the beginning of this month, for example, TLT distributed a dividend payment of 0.33 per share. When factoring this in with capital gains from a new potential uptrend, the fixed-income ETFs offer an attractive opportunity, especially for those looking for a place to park some cash with relatively low risk in this shaky market environment.

Deron Wagner manages the Morpheus Capital hedge fund, and is the author of the new book, Trading ETFs: Gaining An Edge With Technical Analysis. He shares his daily ETF analysis in his Wagner Daily newsletter, available at morpheustrading.com.

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At the time of publication, Wagner was long Claymore Global Solar Energy.

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 also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.