Swing Trading ETFs

In Thursday’s Wagner Daily stock and ETF trading newsletter, we pointed out the potential trade setup in iShares Emerging Markets Index (EEM). Although listed on our watchlist, the trade did not hit our trigger price for buy entry. However, yesterday’s price action in EEM now makes our reward to risk ratio even more favorable for buy entry because the ETF gapped lower on the open, then reversed to close at its intraday high. This resulted in the formation of a bullish reversal candlestick, which is shown on the daily chart below:

Looking at the weekly chart again, notice that Thursday’s pullback also caused EEM to come into new support of its prior downtrend line from the 2011 high. One of the most basic tenets of technical analysis is that a prior level of resistance becomes the new level of support, after the resistance is broken. Therefore, the prior downtrend line shown on the weekly chart below should provide substantial support for EEM:

When a stock or ETF is forming a bull flag chart pattern and then gaps down sharply, it has the effect of washing out the “weak hands” who sell a position that the first hint of trouble. This is positive because it absorbs overhead supply from traders who would otherwise be selling into the next move up. The end result is that it makes it easier for the stock or ETF to move higher when the buyers step back in. Then, traders who sold at the lows feel regret, which causes them to buy at a higher level, thereby adding to the bullish momentum. The other benefit of a stock that gaps down, but closes with a bullish reversal candlestick, is that it makes it easier for us to clearly define our stop price just below the low of the reversal bar. For these reasons, we now like the EEM trade even better. Subscribers should notice on the ETF Trading Watchlist that we have adjusted both the trigger and stop prices for the EEM swing trade setup.

We also mentioned that several other international ETFs were starting to look good. One of those is iShares Philippines (EPHE), which just broke out to a new all-time high and has pulled back to new support of its breakout level. In addition to EEM, we have added EPHE to our watchlist for potential buy entry today. Subscribers should note our exact entry and exit prices for this setup. The weekly chart pattern of EPHE is shown below:

One other international ETF we are monitoring is iShares Mexico (EWW). It is not an “official” trade setup for entry yet, but it is definitely on our radar screen as a potential breakout candidate. The long-term monthly chart of EWW is shown below:

The other ETF that was on our watch list Thursday, Elements Intl. Agriculture (RJA), has yet to trigger for buy entry, but remains on our watch list going into Friday's market. Note the slightly adjusted trigger price. If it does not trigger, or at least forms a bullish reversal bar Friday, we will probably remove it from our ETF newsletter watchlist on Monday.

The commentary above is a shortened version of the September 21 issue of The Wagner Daily, our nightly stock and ETF trading newsletter since 2002. Subscribers to the this top-ranked ETF and stock picking service version receive our best ETF and stock swing trade picks with preset entry and exit prices, access to our proven trading strategy with market timing system, and access to our “turn key” technical stock screener software.

Original post