OK, bad news first: I got stopped out on my USD (the ETF not currency) trade yesterday which really didn’t come as that great of a surprise to me given how thoe trade unfolded the past couple of days. The sliver-lining to this trade now is the potential to jump back in it for an even stronger snap back to the gap from 3 weeks ago that appears on all the major indices as well. The record volume on yesterday’s USD drop could indicate that a little bit of accumulation is happening and I’ll be watching carefully this morning to see if I should jump back in with a close stop under yesterday’s low.

There has been some massive unloading of Gold here in the past couple of days on 2x its typical volume. This may very well signal that the great run is coming to an end. Luckily I sold 75% of my holdings last week, but am waiting for a divergence or much clearer signal to unload the remainder.

The EUR/GBP trade is performing very well and has almost reached it’s target. I have taken profit on half the trade and brought my stop to Break-Even. I’ll watch this closely today as well.

One market I’m watching closely today is Mexico. The overseas markets that have been hammered recently are up today in Premarket trading with Asia leadin the way. Then I took at look at this Mexico ETF and had to smile. Look at that tail from yesterday and what has happened each other time over the past year that such a tail was printed. The only possible drawback this time is that teh volume isn’t clearing 10-million like the other times…. should be interesting to watch.

As I mentioned in my last post, I really think that the Nasdaq is looking the strongest in the short-term. That being said, there are a few sector-ETFs that really have my attention. The two ETFs that I look at are the Networking & Semiconductor index funds (tickers IGN & IGW respectively)

There are 2 methods that I use when looking at a fade entry point. The first is the FFF which I have spoken in great detail about previously. The second way is to look at a recent trading range/consolidation & subsequent breakout and project the distance of the range in the direction of the breakout.

In using either of the methods, the logic is that if price moves to that area, then its short-term momentum should be sufficiently dried up to allow the a counter-resistance to kick in. It just so happens that IGW is sporting a nice reversal bar right at the reversal price of $50 for both methods. The other promising sign is the drying up of the negative volume on each successive downward move. All this points to a counter-move should be good for at least 2-3 points, and possibly a gap-fill up in the $56-57 price range. How I plan on playing this is to enter tomorrow morning at open, cut loose half my position at the $54 target and then bring my stop up to under today’s bar and let the rest go for the gap-fill.

IGN is another very similar setup that is showing signs of reversal right in its FFF reversal-zone after a 25% drop over the past 2 months. If you’re going to be a contrarian, this is the ideal time to step up and give it a shot after a market has already been pounded and is showing signs of exhaustion. I plan on playing this one very similar to IGW, going for a quick 3-5% pop and then get out.

Wow, is this a chart of beauty or what? IYR Real Estate index fund is down 40% over the past year and more than 25% over the past 3 months. We hear every day about the mortgage crisis and sad economic numbers coming out of the housing market…stay way stay away right? Wrong. Not when you start seeing charts like this one.

Now do not get me wrong, I am by no means saying that the end of the housing-market woes is upon us; I have no idea if that’s true or how much farther the sector will decline before bottoming out. BUT if you take a good look at this chart, one thing should jump out at you immediately, the 15 million positive-volume spike that occurred today. That kind of a spike does not happen unless some pretty big players have decided to move at least part of their billions back into the sector, and they usually don’t move all of it in 1 day.

What does that mean for us? Short-Term Follow Through. In the past year, there have been only 2 other occasions where there has been such a +volume spike like today and look what happened, a subsequent 6% & 14% pop in the weeks and months to follow. And while the sector ultimately rolled back over to continue is plunge into the abyss if you knew what you were doing, you could have made a nice little chunk of change during those periods without a lot of risk, and when everyone else was loosing money in a generally declining market.

Now depending on the account I am trading in (Brokerage vs. Retirement) the final step in the process is to drill down even farther from the ETF/Sector level into the individual securities that comprise them. What you are looking for at this level is those securities that are going to outperform your expected return for the overall sector. For example, if you are expecting the sector to move 10% then there are going to be some stocks within that sector that pull that average down and others that will move 15% or more to balance that mean out. If you can identify these trades ahead of time, then you can can improve your results over the long term.

The downside to this is that these individual securities often have much greater volatility which means wider stops and more risk. This is why I usually only look to trade ETFs in my retirment accounts as whole sectors and markets are much more insulated from and less susceptible to the vagaries of current & corporate news events. This makes chart setups much more likely to follow through. Even if I am looking to drill down into the sector more, I still use ETFs over the actual Sector Indexes themselves for doing my research as the ETFs have volume attached which is an integral part of getting a picture of supply and demand.

A couple of examples of individual securities that look like they have the potential to outperform the underlying sector in the short term is GGP & PLD which are 2 stocks that are tracked by the Real Estate ETF: IYR.

Later on today or tommorow I’ll get a more complete list together and post exactly which ETFs I follow. It has changed a little bit since I last spoke about ETFs as ProShares has come out with some very useful products recently that I have added to my tracking list.

I do apologize for the long hiatus. Last April I took a contract job working for a major brokerage company headquartered in the area that was/is going through a major reorganization. I didn’t find out until after all the t’s were crossed & i’s dotted that effective immediately, I would no longer be allowed to post on this website while I was under their employ. Good news now is that the contract is over, the company’s moved their headquarters to St. Louis and I’m free at last to finally let people know where I’ve been!

That being said, now on to the markets!

For those of you who follow my swing trading approach, you know that I like to use a top-down method for getting my bearings on the markets–>Sectors–>Individual Securities.

S&P 500 has been range-bound for the past year and is at the bottom of its range at the moment, which is bullish to an extent. However, the weekly MAs are crossing over and the momentum is down at the moment. To me, this is short-term bullish with a big question mark as to its medium to long term direction.

The QQQQ is setting up the nicest out of all the major indexes at the moment. As you can see, it is only a short distance away from a nice FFF Fade/Long opportunity. Also, historically the Qs tend to reverse and go long once the RSI starts flirting with 20 on the Daily chart. It’s the downward volume that we need to pay real close attention to for while it had been drying up during its recent weekly downward-consolidation, it has the potential to really spike this week.

Overall, I am again, ST Bullish on the QQQQs due to the FFF+ and fact that it usually does not fall too much more than 6 points without some sort of bounce.

Dow is looking choppy/down and is the least attractive market overall, I’m not showing it as I think there are better opportunities elsewhere.

That wraps up my view of the Top, next I’ll be taking a closer look at the different market sectors. To do this, I use a fixed set of Sector ETFs so that I can get a good picture of volume as well. I’ll talk about which ones I use in my next post.

It’s great to be back everyone…Good luck out there and happy trading!