Tag Archives: EEM

What to do when market confuses?

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Market seems sending mixed signals. At times like that I like to zoom out to a longer term to see a “bigger picture”.

For this week I chose EEM not that it is of any specific situation. Many ETFs are forming very similar patterns.

Step one – zoom out to a monthly view:

EEM Monthly Chart

I am trying to predict a pattern before it is solid. On this chart I am looking at major reversal points and their volume. Here volume confirms the bounces from the lower range of what I am guessing might be forming. Volume at rejection points (upper range) was not significant, but MACD cooperated.

Step two – zoom in to a weekly view:

EEM Weekly Chart

I am trying to zoom in on the possible pattern. It seems in tact. Here also volume confirms the bounces. Rejections are also in harmony with MACD. As you can see the same support/resistance level at $44 is visible with more detail points of crossing over/under.

Step three – zoom in to a daily view:

EEM Daily Chart

I am looking for a possible next move. EEM has been rejected four times from the upper level of down sloping channel. It doesn’t mean that this channel is “hardcoded” somehow in the memory of the market but it is quite possible that many traders are watching it and trading accordingly. The current price is in a significant distance from the upper level and a bounce from the lower range of the down sloping channel is of high probability.

There is of course no guarantee that EEM will bounce soon. The weekly chart still shows some room to the downside before next significant support.

Eva

What if the market breaks out?

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I am taking a week off and writing this blog before the Friday 03-30-2012 close. To prepare for the time away from the market I was cashing out step by step from my active trades. I am going to leave some trades still open to be closed automatically once my targets are reached. Besides that I just have cash. Am I going to miss a rally – maybe? The risk is higher to stay with lots of open trades at this point.

So what am I going to do if during my time off we zoom to the moon in spite of all bearish patterns: rising wedges, megaphones, overbought conditions etc?

Well, I am going to look for pockets of the market that traders hated the most in recent months. If and only if the move out of the major resistance on SPY (around $160) is confirmed, I will enter trades in the ETFs that were definite laggards. My current candidates for fishing: EWZ, XME, EWC, EEM.

Happy trading,

Eva

Next winner: Weekly or Daily

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What should guide the trades this week?

Some ETFs I track show H&S on weekly charts (EEM, EWC, XME). These H&S started when the market took off in July 2009.

See weekly chart of EEM: left shoulder top around $44 in January and April of 2010, head around $50. Now approaching $44 – is that right shoulder or just a stop on the way toward $50 within a triangle?

Daily chart of EEM shows base building with resistance at $44. EEM currently testing SMA(20) and above SMA(200). SMA(20) and SMA(50) pointing up already. MACD positive but topping.

SPY already broke out from a similar base on the daily in January 2012. DIA, IWM, MDY, QQQ look similar or better.

Are ETFs like EEM, EWC, XME going to break down while the market keeps moving up? I doubt it. Either these ETFs should improve while market moves up, or they are flashing a warning sign for all of us.

As for my trading: I stay focused and disciplined, and trade what comes available with good setups (see my blogs from last year).

Eva

12 months have come and gone (Part 1)

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That was fast! What are the results? Very mixed.

My accounts are slightly positive on average. However this is not satisfactory for so much work that I had put into trading.

With market being negative for the year so far, it is very little comfort. It is time to revisit the approach and the trades in more detail.

So far the approach to my trading proves itself. The bigger challenge is to continue to tune the size of trades under the market conditions. I do not want to just outperform the market on relative basis. I am targeting to consistently make real money every year. It is always work in progress.

Below is the list of ETFs that I follow. I do not trade all of them. I am most comfortable trading MDY, EEM, XME, SMH, EWC and EWZ.

“%GL” is the % from the top value reached within last 12 months. The market is under pressure to say the least. XME retraced almost 40% from the high. You can’t just buy and hold.

Look at the chart of XME:

XME121811

XME seems to have formed a triangle oscillating around a center line of about $60. Holding XME in a portfolio for long term doesn’t look appealing. However XME as a trading vehicle is quite predictable if performed with patience and proper risk management.

ETF Performance

Symbol%GLLast
SLV-40.33$28.85
XME-36.88$48.88
EWZ-36.88$56.94
XLF-27.09$12.54
EEM-25.60$37.52
EWC-25.48$25.76
EFA-24.89$48.34
EWA-22.79$21.89
EWJ-22.18$9.05
SMH-20.83$29.12
XLE-18.24$66.14
IWM-16.76$72.26
GLD-16.48$155.23
MDY-16.08$155.22
IJH-15.91$85.56
SPY-11.36$121.59
QQQ-7.55$54.86
UUP-3.89$22.49
TLT-2.14$122.32
TIP-0.87$116.97

Following analysts – should you?

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Sometimes I review recent headlines at CNBC.com to see how accurate the analysts are. They will be proven right at some point just because the market fluctuates all the time. Judge for yourself:

3/8/11 “Emerging Markets Still the Place to be: Strategist”

“Wolter now thinks this correction is almost complete. “In our analysis, it shows something like 80 percent of the hot money that came into the emerging markets segment, have come out again already. So we think we are closer to the end of this trend than the beginning”

Having corrected, he now thinks emerging market stocks are looking more attractive.

“We think the underlying dynamics don’t look too bad for emerging markets at this point…The big picture is that long term government bonds across the developed world look pretty unattractive and the shifts we are going to see is going to be where people take money out of bond funds and put it into equities.”

3/8/11 Can It Be? Euro Fatigue Is In the Air

Meanwhile, a think tank report published Tuesday suggested that the Federal Reserve may start pulling back on its monetary stimulus measures sooner than widely expected. The report, from Medley, has put some muscle in the dollar, and is also making European rate-hike prospects somewhat less exciting in comparison.”

“Then there are all those traders with really big short positions against the dollar. “It doesn’t surprise me to see some profit taking on short positions, especially when you see news reports that markets may not get everything they want from the summit,”

David Forrester, an FX strategist at Barclays Capital, hinted at euro fatigue in a recent interview with CNBC. “We have to be a little bit careful” around the euro, he said, adding that “We would be a little bit wary of getting long the euro” at current levels.”

Let’s say that you heard or read these opinions on March 8th and said: “Wow, I know what to do with my cash tomorrow! These are smart guys. You also tell your friends about this….

You do a quick research on what ETF to buy to benefit from the wisdom of these gurus. You want to place aggressive trades.

One of the popular choices for trading emerging markets could be EEM. To trade Euro you may have decided to use FXE.

On March 9th you buy, in equal $ amounts shares of EEM at $46.95, and short FXE at $138.47 (or maybe decide to buy UUP instead at $22.02):

Next day you think you are ok. EEM dropped down almost 3% to close at $45.56. FXE also dropped down but only by 0.8% to $137.33. Your short position in FXE did offset some of the loss from your EEM looser.

What about last Friday, March 18th? EEM closed at $45.23 and FXE closed $141.14. Just in 10 days you lost money on both trades so far: you lost 3.7% on EEM and 1.9% on your short FXE.

10 days after CNBC headlines and you are a looser. How could that be? What should you do now? Well, I assume that you had a plan before you entered the trade. Why would you have entered the trade otherwise? So just follow your plan.

I looked at the 6 months daily charts on March 8th.

  1. EEM was pressing the upper BB, MACD was pushing above zero line. No trade here for me. I would rather traded this one on February 24th (looking at daily chart) but I didn’t like the 5 year weekly chart of it for the long trade (MACD falling)
  2. FXE on the other hand looked like it was already pulling back but it had a nice support around $137 – no shorting here for me!

You may say: “Analysts were right but nobody expected the Japan tragedy to happen”.

Look at the 5 year weekly chart of EWJ:

EWJ looked ready for a pullback anyway: trading at the upper BB with MACD at the level when it “topped” in August of 2009. The last week’s candle printed after the bounce from the low BB with the support level just above $9. Are we done coming down? I don’t know. The support of $9 looks strong…..

I will just continue trading what the market is telling me, not the analysts, not the headlines, media etc.

Eva

Left out in the dust?

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Do you feel sometimes like you missed a major move in the market? Do you ask yourself “what was I doing?”

Maybe you were listening to the “Sirens” from my previous blog?

Look at QQQQ on 5 year weekly chart. While the market “gurus” were talking that the market was overbought and due for a big pullback, QQQQ moved quietly above the decade high! Wow. How could that be? It looks like a large H&S with the neckline around $50-$55. It went through it without a fanfare.

I do not trade QQQQ but I like to check how it’s doing once in a while.

SMH is also trading in what appears a slightly tilted H&S, just above the neckline.

Look at IWM, MDY, they look similar:

IWM 5 year weekly chart looks impressive. What looked like a correction in 2007-2008, was followed by a large 6 months plunge of 2008-2009. It boldly climbed up for 13 months and went through a 6 months long correction of April-October 2010.

Currently IWM is trading against the resistance at a high from July 2007. It has not retested the support of $75 after it went through it at the end of November 2010 (then a resistance). MACD flattened.

Look at daily IWM. IWM tried to correct in January, 2011 – SMA(50) held at low BB. It started correcting again Feb 18th 2011. Is it going to hold SMA(50) or retest &74-$76 area?

Look at SPY 6 month’s daily chart. Look at how it traded in November 2011 and how it’s trading now. Apply to your charts: MACD(12,26,9), BB(20,2.00), SMA(20), SMA(50), SMA(200), W%R(30). I don’t like to overload my chart with too many indicators however for this exercise you may also look at RSI(14) or STO(14,3,3). The current correction looks similar to the one from November last year so far. SPY may retest nicely SMA(50) but it also may try to retest $120-$122.

I will keep this chart in front of me when I trade this week to make sure that I tailor the risk accordingly.

Maybe, just maybe, the market will give me a nice entry for a longer term trade (longer trade for me is longer than couple months). On longer term trades I use 5 year weekly charts to manage the risk (support/resistance levels) and 6 months daily charts to define more precise entry/exit points.

I start looking for good entries on ETFs that may correct significantly (10%-20%). Keep in mind that ETFs with high beta (XME, SMH, EWZ, XLE, EEM) very often correct around 16-20% while SPY may correct only 6-10% in the same time.

Can we correct more, much more? Sure! But we can also: break out and continue push up, or just correct 10-20% before a bigger move up. Observe the market for clues.

Below is a list of ETFs from my watch list:

ETF % Pullback from last significant high Last Close
EWZ -10.54 $73.14
XME -7.92 $68.75
SMH -7.69 $33.95
EEM -5.29 $46.03
EWA -5.27 $24.97
XLE -5.19 $75.11
EWC -4.74 $32.59
IWM -4.29 $80.18
EFA -4.26 $59.34
XLF -3.84 $16.54
MDY -3.11 $173.25

However if the market decides to keep pushing up and up regardless of “the sky is falling” messages from the media I will continue trading at these levels but decide to switch some of my current long entries from “short term” trading to “longer term” trading…

Eva

Why ETFs?

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Last week I was on the road with limited access to the computer and very limited new trades.

Let me start with addressing a general question about trading ETFs: where to find information about ETFs, would I trade TZA, etc.

If you are interested in specific ETFs read about them on Yahoo Finance, or go to the source (iShares , ProShares, etc).

It took me several years of trading to make a decision to focus solely on trading ETFs. I limited the selection based on my observations over the years which ETFs trade in a way that I can predict the next move with a better probability. ETFs, also like stocks, have their “behavioral” patterns and volatility. Some of them are more predictable, some less.

I want in my selection: volatility, market segments/industry/international that can move faster or are significant for the market direction.

I am not interested in researching why they act the way they do over time. I am mainly interested in noticing the patterns and assessing the next move and the risk.

Why do I use the narrow group? It’s a selection I am most familiar with and that familiarity gives me a better chance to be consistent with my trades. I prefer to trade IWM over TNA. I do not have a need to juice up my trades. TNA is too fast and never gave me consistency of trades. A simple choice: do I want to make money slowly or loose it fast? I chose the former.

Why don’t I trade TZA? Not in this market first of all. Why would I want to waste my energy to swim against the currently prevailing market force?

It is true that RUT is close to all time high. What is the next segment of the pattern? Is it going to be a double top or a breakout? I don’t know. I am certain that nobody knows. I will just keep trading…

Look at the most recent 10 day hourly chart of IWM. Check my blog from January “Buy at Support – Sell at Resistance”. The setups keep coming.

IWM 14 Day Hourly Chart

The ETFs that I trade frequently are IWM (for non IRA account) and MDY (for IRA account). These give me the broad market of small and mid caps with volatility. For these ETFs I manage risk without using stops. Instead I time the entry based on charts, use the position size and modify frequency of trading. I do not have a loosing trade doing that however my risk is in time how long it may take to make money on some of the trades.

When I trade EEM, EWC, SMH, EWZ, XME I don’t use initial stops. Instead I time the entry based on a chart and write a plan for next trade: levels of support/resistance, buy points, partial trades. However once I have a winning trade I mostly use the technique of rising stops to avoid turning my gains into losses. Very often I may decide to exit if market is giving me mixed signals.

It is much more productive to take the money when I still have it and look for a fresh opportunity vs. sitting in a winning trade with a growing chance of a reversal at resistance.

I don’t put more than 10% of my account value into a single trade. I define a trade as an event in time on the same ticker. This way I may have a position that is bigger than 10%.

I am never fully “invested”. I am a trader so I need cash for trading…

The market is an always changing formation which I respect a lot. I do not trust it though.

Eva