How to Tune Out All the ETF Noise

Due to the plethora of market-moving news floating around these days, violent, whipsaw moves in both directions on the broad-based indices and ETFs have made intraday gyrations of 3% or 4% the norm in recent weeks. But one way to see through the dizzying daily charts is to take a look at the longer-term trends found on the weekly and monthly ETF charts. Of particular interest is the monthly chart of the SPDRs (SPY - commentary - Cramer's Take), a popular ETF proxy for the S&P 500. Take a look at the chart below.

SPY Monthly S&P Dep Receipts

Click here for larger image.

Source: TradeStation Chart Analysis

The dashed, ascending blue line correlates to support of a very long-term uptrend line in the S&P 500 that began with the low of December 1994, which is the first anchor point on the bottom left of the chart. In technical analysis, the longer a trendline has been in place, the more likely the dominant trend will remain intact. As such, I consider a 14-year old uptrend line to be rather significant and one that could soon have a positive impact on the direction of the stock market.

Furthermore, this long-term uptrend line converges with key support of the 50% Fibonacci retracement level from the October 2002 low to the October 2007 high. Notice how in January and March of 2008, the SPY (and the S&P 500) bounced after testing support of its 38.2% Fibonacci retracement (circled in pink on the chart).

As the 50% retracement is even more significant, odds favor a decent countertrend bounce as the S&P 500 tests its 50% retracement level at the present time. This convergence of the 50% Fibonacci retracement and support of the 14-year uptrend line (circled in green) provide valid reason for a buy entry into SPY. This trade should only be consider for a long-term entry, however, as the short- and intermediate-term picture is still too negative to attempt to time just a quick bounce.

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At the time of publication, Wagner had no positions in the stocks mentioned.

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.