Top swing trading stock & ETF picks with Morpheus Trading Group (MTG)

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Why MagnaChip Semiconductor Corp ($MX) May Soon Explode Higher

After a nasty shakeout from a false breakout in mid-February, MagnaChip Semiconductor Corp. ($MX) (which IPO’d in March 2011) has tightened up nicely above intermediate-term support of its 50-day moving average, and is holding above near-term support of its 20-day exponential moving average as well.

Big breakouts are typically preceded by a tightening of price action, which $MX is now exhibiting. The recent “false breakout” absorbed overhead supply, which should make it easier for $MX to surge higher after it breaks out above the high of its recent range. The technical swing trade setup for $MX is shown on the annotated daily chart below:



Although our stock picking strategy for swing trading is based primarily on technical trend following and market timing, we also incorporate certain elements of the popular and proven CANSLIM model into our stock selection process (although we tweak the indicators to be applicable for shorter holding periods than CANSLIM is intended for).

The IBD Relative Strength Ranking for $MX is very strong at 92, along with an equally strong EPS (earnings per share) ranking of 94. The earnings and revenues of $MX have ramped up over the past three quarters, and the ROE (return on equity) is at an impressive 35%. Furthermore, there has been a strong increase in fund sponsorship over the past 7 quarters, signaling that institutions want a piece. Finally, the IBD Industry Group rank is 20 out of 197 (stocks in the top 40 groups are ideal buy candidates).

As we have mentioned several times in recent weeks, the king of technical analysis is always price action (volume is queen). Therefore, until key leadership groups and stocks in the market start clearly breaking down, our bias must remain on the long side (albeit cautiously).

With that in mind, we have added several new individual stock and ETF buy setups, including $MX, to today’s “official” watchlist of The Wagner Daily stock picks newsletter. Regular subscribers should note our preset trigger, stop, and target prices for this $MX trade setup in today’s report, as well as several additional new stock and ETFs we are stalking for potential momentum trade entry.

Navigating the stock market over the past few weeks has been challenging due to the mixed signals being received by our stock market timing model. However, don’t forget that price action is always king. For the moment, the market is holding up and new technical trade setups are emerging, both of which are bullish signs.

Although the stock market continues to advance on light volume, it’s tough to ignore the fact that chart patterns of many leading stocks still look good. Yes, we have seen a few market leaders break down, such as 3d Systems Corp ($DDD) or Ocwen Financial Group ($OCN), but the majority of leading individual stocks are still holding above their 50-day moving averages and trending higher (or forming bullish basing patterns).

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How To Trade The Cup And Handle Chart Pattern For Maximum Profit

In uptrending markets, most of our swing trade setups are stocks and ETFs (with relative strength) that are breaking out above bases of consolidation. We also buy pullbacks of uptrending equities when they retrace to near-term support levels. However, another bullish chart formation many technical traders profit from is the “cup and handle” pattern.

In this article, we use current annotated charts of United States Natural Gas Fund ($UNG), a commodity ETF that roughly tracks the price of spot natural gas futures, to show you how to trade the cup and handle chart pattern. Let’s begin by looking at the weekly chart timeframe of $UNG below:



Notice that the left side of the pattern begins in November 2012, after a 60% rally off the lows. This is positive because proper cup and handle patterns should not form at or near 52-week lows; rather, there should already be an uptrend in place for at least several months in order for a correct cup and handle to develop.

The selloff in December 2012, as well as the bottoming action in January and February of this year, combine to form the left side and bottom of the “cup.” The right side of the cup was formed when $UNG broke out above major resistance of its 200-day moving average and rallied to the $22 area.

Zooming in to the shorter-term daily chart interval, note the “handle” portion of the pattern that is currently developing:



The handle typically requires at least a few weeks to properly develop (sometimes more). While forming, price action will typically slope lower. In the case of $UNG, even an “undercut” of the March 25 low and 20-day exponential moving average would be acceptable. However, the price needs to hold above the $20 level during any pullback. Otherwise, a breakdown below that important support level could signal the pattern needs a few more months to work itself out.

If buying $UNG, it is important for traders to be aware of possible contango issues that could result in an underperformance of the ETF, relative to the actual spot natural gas futures contracts. Nevertheless, contango is typically not a big deal if exclusively swing trading the momentum of $UNG over shorter-term holding periods (less than about 4 weeks). Conversely, the negative effects of contango become much more apparent over long-term “buy and hold” investing timeframes.

For our rule-based ETF and stock swing trading system, the technical chart pattern of $UNG is not yet actionable. Still, the annotated charts above clearly explain the specific technical criteria we seek when trading the “cup and handle” chart pattern.

As always, we will promptly alert newsletter subscribers with our preset entry, stop, and target prices for this swing trade setup when/if it provides us with an ideal, low-risk buy entry point in the coming days.

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Don’t Miss This Explosive Breakout In US Natural Gas Fund ($UNG)

In this April 2 blog post, we explained in detail how to trade a bullish technical chart pattern known as the “cup and handle.” At the time, United States Natural Gas Fund ($UNG) was still forming the “handle” portion of the pattern. However, since the ETF broke out last Friday (April 5), $UNG is now in play as a valid swing trade entry. Here is a follow-up look at the current price action…

In our initial analysis of $UNG, we said, “While forming (the handle), price action will typically slope lower. In the case of $UNG, even an ‘undercut’ of the March 25 low and 20-day exponential moving average would be acceptable.” On April 4, an “undercut” of the March 25 low and 20-day EMA is exactly what happened. The following day, $UNG jumped 4.5% and broke out above the high of its 3-week range. The move was also confirmed by an impressive volume spike. This is all shown on the daily chart below:



Since this ETF closed only slightly above the highs of its range, it is not too far extended to buy near the current price level. As such, regular subscribers of our nightly ETF and stock picking newsletter should note we have listed this trade setup as a new potential buy entry. Our exact trigger, stop, and target prices for this ETF swing trade can be found in the “watchlist” section of today’s report.

One of the things we like about the $UNG trade setup is that it is a commodity ETF. Since our market timing model is now in “sell” mode, we are generally avoiding the long side of the market. However, one exception is ETFs with a low correlation to the direction of the stock market. Commodity, currency, fixed-income, and international ETFs are all such examples.

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Don’t Miss The Breakouts In Hot Asian ETFs

Our technical ETF and stock screens have produced several high quality stock and ETF swing trade setups over the past several days. Within the realm of ETFs, a majority of the most bullish chart patterns are presently found in international ETFs. More specifically, ETFs of the Asian region are showing the most relative strength. In this article, we analyze the current chart patterns of two of them, both of which may be actionable within the next several days.

iShares MSCI Singapore Index Fund ($EWS) is back on our watchlist after a failed breakout attempt last February. Since then, the price action has undercut the 50-day moving average and popped back above it. After another false breakout attempt on April 3, $EWS found support from the rising 50-day MA and prior swing high (dotted black line), around $13.75. The daily chart of $EWS is shown below:



When possible, it is important to have multiple time frames confirming a potential trade (on recent IPOs we can’t). This means that we like to see something interesting happening on the weekly or monthly charts to support our analysis on the daily chart. That also goes for intraday charts, as the majority of our buy entries are placed above all major moving averages on the 5, 15, and 60-minute time frames.

With $EWS, the monthly chart below shows a downtrend line in place with multiple touches of the anchor points. A breakout above the high of the current range should lead to a breakout above the monthly downtrend line:



One of the best looking country ETF charts we found was the Market Vectors Vietnam ETF ($VNM).

The weekly chart is quite powerful, as it shows the huge pick up in volume during the rally as the price action cleared the 40-week MA (in orange). The price action is now consolidating in a tight range around 10-week MA (teal line). Also, note the dry up in volume two weeks ago, which indicates that investors have lost interest in trading $VNM as it continues to base out (this is bullish):



The daily chart in $VNM shows the tight price range just below the 20-day EMA. We can easily see the nice drop off in volume since March 27 as well.

A break above the three-day high is our buy entry, as this would put the price action above the 20-day EMA and the short-term downtrend line of the tight range. A break above $21 would also confirm that a higher swing low is in place on the daily chart:



In addition to $EWS and $VNM, iShares Indonesia Index ($EIDO), iShares Thailand Index ($THD), and iShares Philippines ($EPHE) are also on our internal watchlist. However, all three ETFs ideally need several more weeks of consolidation in order for their basing patterns to tighten up. Conversely, $EWS and $VNM have already formed potentially buyable patterns that could trigger in the next few days.

If you want to be notified in advance of our exact entry, stop, and target prices for these Asian ETF swing trade setups, be sure to get started today with your 30-day risk-free trial subscription to The Wagner Daily swing trade newsletter. Your subscription also includes access to our winning market timing model, Live Trading Room, and Live Q&A Webinars (for members only).

Whenever there are 5 or more “distribution days” (losses on higher volume) in a major index within a 3 to 4 week period, and leading stocks begin selling off on heavy volume, it is always a major concern. However, if the stock market is able to fight off the distribution AND quality bullish stock setups can still be found, then we must buy.

Sometimes it is easy to forget that we are swing trading individual stocks and ETFs, not the main stock market indexes. Above all, don’t forget our trading system is designed to react to price action, rather than attempting to predict it.

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Stock Market Breaks Down, But Two Of Our Swing Trades Breakout

Stocks continued to sell off on Thursday, with tech stocks getting hit the hardest. The Nasdaq Composite sold off 1.2%, while most averages closed lower by 0.6% to 0.7%. The Nasdaq sliced through key intermediate-term support of its 50-day moving average, joining the Russell 2000 and S&P Midcap 400.

The S&P 500 closed just below (but not a decisive break of) its 50-day moving average yesterday, after undercutting its prior “swing lows” at the 1538-1539 support level:



The 50-day moving average is a very important support level during a rally, as it is basically the line in the sand for the bulls. When the major averages all break below the 50-day MA within a few days of each other, it is usually a good time to raise cash and sit on the sidelines.

The evidence below suggests that the market is now in a corrective phase, which forces our rule-based timing model into “sell” mode:

There are at least 5-6 distribution days in the market (strike 1).
Most of the main stock market indexes are trading below the 50-day MA (strike 2). We do not count the Dow.
Leading individual stocks are beginning to break down below key support levels (strike 3).
How long will a stock market correction last? No one knows, but there is one main clue to watch out for.

Can leading stocks that have recently broken down find support and stabilize? There is a big difference between leading stocks pulling back 15-20% off a swing high versus completely breaking down and selling off 40% or more from their highs. If most stocks hold above or around their 50-day MAs and fall no more than 20-25% or so off their swing highs, then we would expect any correction in the S&P 500 to be limited to around 4-6%.

US Natural Gas Fund ($UNG), a current holding in the model portfolio of The Wagner Daily, is in pretty good shape after yesterday’s (April 1 strong advance. The weekly chart below shows $UNG zooming above the breakout pivot, which is always a bullish sign:



As annotated on the chart above, $UNG is holding support of a steep uptrend line (black dotted line), while the 10-week MA (teal line) is beginning to pull away from the 40-week MA (orange line) after the bullish crossover a few weeks ago. One great thing about $UNG is that it has a low correlation to the direction of the overall stock market because it is a commodity ETF.

As you may recall, our actual swing trade buy entry into $UNG was based on the “cup and handle” chart pattern we originally pointed out in this April 2 post on our trading blog. Presently, $UNG is showing an unrealized gain of 6% since our April 8 buy entry, and is well positioned to continue higher in the near-term.

In addition to $UNG, we also continue to hold Market Vectors Semiconductor ETF ($SMH). Presently, this ETF is holding above its prior swing low, but is struggling to reclaim its 50-day MA. Nevertheless, based on our March 28 technical analysis of the semiconductor sector, we are still bullish on the intermediate-term bias of $SMH.

Alongside of $UNG and $SMH, our model portfolio is still long two individual stocks (bought when our timing model was in “buy” mode): Celldex Therapeutics ($CLDX) and LinkedIn ($LNKD).

Despite yesterday’s decline in the broad market, $CLDX broke out to a fresh all-time high and is currently showing an unrealized gain of 8.9% since our April 9 buy entry. The daily chart of $CLDX below shows our recent breakout entry point:



Our other individual stock holding, $LNKD, is roughly break-even since our swing trade entry point. However, we do not mind holding this A-rated stock through a corrective phase in the broad market, just as long as our stop is not triggered.

If the price action can remain above the 10-week MA, then we may be able to hold through earnings in early May and potentially catch the next big wave up. As detailed in this article that explains our strategy for trading around earnings reports, we previously netted a handsome gain of 22% trading $LNKD before and after its January 2013 earnings report.

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Funds Rotate Into Nasdaq, But Light Volume Is A Concern ($QQQ, $SMH)

Led by solid gains in the Nasdaq 100 and Nasdaq Composite, stocks closed higher across the board yesterday (April 22). The Nasdaq Composite easily outperformed the S&P 500 on Monday, signaling that money is beginning to rotate out of the S&P 500 (and Dow) and into the Nasdaq. This is a positive sign for the bulls, but there is one main concern about this — a lack of higher volume.

Over the past two sessions, the Nasdaq has climbed about 2.5% off last Thursday’s low. However, volume declined in each of those past two sessions, which means the move was unconfirmed by institutional buying. The Nasdaq may need a bit more time to consolidate, as there is quite a bit of overhead resistance.

Looking at the daily chart of the Nasdaq 100 ETF ($QQQ) below, we see price action running into resistance clustered around the $69 level:



The five weeks of stalling action near $69, along with the 10 and 20-day moving averages, make for quite a bit of resistance. However, if $QQQ can power through this level without further consolidation, it would be a very bullish sign.

Market Vectors Semiconductor ETF ($SMH), an ETF we have been bullish on since the initial March 28 analysis on our trading blog, continues to chop around near the pivotal, intermediate-term indicator of its 50-day moving average, with support coming in around $34.50 last week.

If $SMH can set a higher swing low and close above Monday’s high on a pick up in volume, then it may attract enough buying interest to break the short-term downtrend line and test the highs of the base:



In today’s Wagner Daily trading newsletter, we are stalking $SMH for potential swing trade buy entry if it meets our technical criteria (looking to add to our existing position on strength). Subscribing members should note the details for $SMH in the “watchlist” section of today’s report. Presently, all five of the open positions in our model trading portfolio (3 ETFs and 2 individual stocks) are showing unrealized gains.

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Why Short Selling Gold Is Now A Low-Risk Momentum Trade ($GLD, $DZZ)

On April 14, we wrote a blog post titled How To Profit From The Break Of 6-Year Uptrend in Gold. At that time, we said of SPDR Gold Trust ($GLD) that a bounce into new resistance of its prior support level (around the $150 area) would provide an ideal, low-risk short selling entry point.

But since the gold ETF plunged nearly 20% over just a two-day period (April 12 and 15), the odds of a quick bounce all the way back to the breakdown level became minimal. Nevertheless, two weeks after the meltdown, $GLD is now technically setting up for a secondary short selling entry point, based on momentum, that is also ideal.

Since its April 15 low, $GLD has been bouncing from near-term, oversold conditions. Last Friday, the gold ETF bumped into and “overcut” resistance of its 20-day exponential moving average on an intraday basis. However, by the closing bell, $GLD had fallen back down below its 20-day EMA and closed near its low of the day. This is shown on the daily chart below:



When looking to profit from a stock or ETF that breaks down below support, then subsequently bounces into resistance, we prefer to avoid entering a new short position while the equity is still moving higher. Rather, after the breakdown, we wait for the first day that the equity closes substantially lower following a rally into resistance (learn more about our short selling strategy).

In the case of $GLD, last Friday’s probe above the 20-day EMA and formation of a bearish reversal candlestick is especially attractive because it followed a strong move higher that occurred on April 25 (bulls are forced to sell). As such, $GLD now presents us with a low-risk entry point on the short side only if the price falls below the April 26 low (all bets are off for short selling entry until that happens).

With this swing trade setup, we want to clarify that we are NOT necessarily expecting $GLD to make another leg lower within its current downtrend. Rather, we are merely anticipating at least a retest of the April 15 low (such as an “undercut”) before $GLD stabilizes and tries to make any type of significant move higher. As such, note that our projected holding period of this momentum trade setup is expected to be shorter-term than our typical ETF swing trade.

Also, note that our actual trade setup on today’s official “watchlist” is actually to buy the inversely correlated DB Gold Double Short ETN ($DZZ), rather than selling short $GLD. We do this because many Wagner Daily subscribers have non-marginable cash accounts, such as an IRA accounts, that prohibit short selling of any kind. But through buying a “short ETF” instead, these traders can still benefit from the downside movement of certain market sectors. Still, we are basing our entry and exit points on the actual chart of $GLD, rather than $DZZ, to ensure the most accurate tracking to the price of spot gold. Subscribers to our ETF and stock picks newsletter should note our preset and exact trigger, stop, and target prices for the $DZZ momentum trading setup in today’s report.

On a separate note, here is a brief update on the open stock and ETF positions presently in our model swing trading portfolio: We sold a partial position of Celldex Therapeutics ($CLDX) for an 18% gain on April 25, but remain long about half the original shares). LinkedIn ($LNKD) is currently 7.8% above our April 9 entry point and we continue to ride the profit. The other three individual stocks in our model portfolio are each slightly higher than their recent entry points, and we remain long.

On the ETF side, our existing long position in Semiconductor HOLDR ($SMH) has been following through to the upside nicely. It held last week’s breakout to a new 52-week high and its currently up about 3% from our average entry price. US Natural Gas Fund ($UNG), also showing an unrealized gain going into today, formed a bullish “hammer” candlestick after finding support at its 20-day EMA last Friday. It looks well positioned for further gains in the coming week. On today’s watchlist, subscribing members of our technical stock picking newsletter should also note the trade details for three additional swing trade setups (2 stock picks and 1 ETF pick).

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How Relative Strength In The Nasdaq Can Increase Your Trading Profits Now

Until recently, the 2013 stock market rally has clearly been led by the Dow Jones Industrial Average, while the Nasdaq Composite has lagged behind considerably.

But since the recovery off the April 18 "swing lows" in the broad market, the Nasdaq has climbed 3.6%, while the Dow has gained only 1.2% during the same period.

Is this sudden display of relative strength in the Nasdaq only a short-term aberration, or is it the start of new leadership in the stock market?

It's too early to know for sure. However, if funds have indeed begun rotating into the Nasdaq, it would be a bullish signal for the overall market.

This type of sector rotation would point to an increasing appetite for risk among banks, mutual funds, hedge funds, and other market-moving institutional players. This is because the tech-heavy Nasdaq is generally considered to be more "risky" then deploying funds in the "old school" Dow. Of course, the potential rewards for investing and trading in the Nasdaq are typically much greater than the Dow as well.

Because our momentum-based strategy for swing trading stocks focuses primarily on small to midcap stocks (many of which are traded on the Nasdaq), we would obviously welcome the next phase of the market rally being driven by the Nasdaq.

Many leading stocks in our swing trading portfolio, such as LinkedIn ($LNKD), have begun rallying to new 52-week or all-time highs ahead of the Nasdaq. This is a bullish indication of relative strength in the stock market that enables astute traders to outperform the main stock market indexes through trading in these market leaders.

It's not only stocks that benefit from a strengthening Nasdaq. The right industry sector ETFs can show leadership and relative strength too.

It's not only stocks that benefit from a strengthening Nasdaq. The right industry sector ETFs can show leadership and relative strength too.

Market Vectors Semiconductor ETF ($SMH), which is currently showing an unrealized gain of 3.8% since buy entry in our nightly ETF and stock picking report, nicely fits the bill.

Last week, the PowerShares Nasdaq 100 ETF ($QQQ) scored a solid 2.2% gain. However, $SMH jumped 3.9% last week (nearly double the advance of $QQQ). More importantly, $SMH broke out above a 3-month base of consolidation and rallied to a fresh 52-week high last week. It's a clear sign of relative strength in the semiconductor sector that $SMH has jumped to a new high ahead of the Nasdaq, which tells us we are holding on to the right positions.

The April 24 breakout to a new 52-week high in $SMH is shown on the daily chart below:



In case you missed it, we initially made a bullish call on $SMH (and the semiconductor sector) in this blog post about a month ago.

At that time, we liked that $SMH was breaking out above resistance of a nine-year downtrend line, which was only apparent by looking at the long-term monthly chart interval of the ETF.

Below is the same monthly chart of $SMH we pointed out on March 28, back when $SMH was still in consolidation mode (trading below its 52-week high):



Now that $SMH has finally broken out to a new 52-week high, the breakout above the nine-year downtrend line shown above is becoming confirmed.

Because this trend reversal is of such a long-term nature, it may provide swing traders with many stock and ETF buying opportunities in the semiconductor sector; not only in the near-term, but in the intermediate-term as well.

In case you are new to momentum swing trading, it's important to understand that stocks and ETFs breaking out to new 52-week high usually provide us with our largest gains because these equities have a complete lack of overhead price resistance (which would otherwise be created by sellers who bought a higher price).

If you are new to our overall swing trading system, including the concept of buying stocks and ETFs at new highs, click here for a basic overview of how our selection process works.

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Why First Trust Internet Index ETF May Be The Next To Breakout ($FDN)

One ETF on our radar screen for potential buy entry right now is First Trust Internet Index ($FDN). Unlike many of the strongest ETFs in the market that are near-term extended to the upside, $FDN has not yet broken out above its range. As such, one could understandably argue that the ETF has relative weakness and should be avoided. In many cases, that would be true.

Even though $FDN has not yet broken out, the difference here is that the ETF has been forming a constructive base of consolidation at its all-time highs. This is much different than buying an ETF that is trading near its lows and is only now attempting to reverse its downtrend. The weekly chart of $FDN below shows how the ETF has been consolidating for the past few months:



On the week ending March 8, notice that $FDN attempted to break out to a new high, but failed the following week. When this happens to an ETF or stock that is trading near its highs, it does not necessarily mean the setup becomes invalid. On the contrary, some of the most explosive upside moves occur when the first breakout attempt fails, but the equity subsequently breaks out and hold. Often, failed breakouts at the highs simply indicate a lengthier period of base building is required.

Zooming into the shorter-term daily chart interval, notice that a rally above yesterday’s (May 1) high would present a valid buy entry point for a partial position. Additional shares could be added to the position on confirmation of a breakout above the highs of the range:



Despite the major indices losing 0.9% yesterday, $FDN showed relative strength on the day by slipping just 0.5%. This was aided by shares of LinkedIn ($LNKD), which ignored the weakness in the broad market and climbed 1.4% to another fresh record high. $FDN is primarily comprised of mid to large-cap internet stocks like Google ($GOOG), Netflix ($NFLX), and Yahoo! ($YHOO), each of which are trading at or near their 52-week highs. Click here to see the current portfolio of stocks that comprise the portfolio of $FDN.

Speaking of internet stocks, our open position in $LNKD is now showing an unrealized gain of nearly 12% (20 points) since our April 9 buy entry. As we said in yesterday’s The Wagner Daily, “$LNKD is scheduled to report earnings after the close on May 2, so if you are uncomfortable holding through earnings you should exit the position into strength ahead of the report (in today’s session). Because we have a decent profit buffer we do not mind holding $LNKD through earnings.” To further your trading education, may also wish to check out how we traded around last quarter’s $LNKD earnings report for a total gain of 22%.

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The Top 3 Most Simple & Profitable Buy Setups For Swing Trading Stocks

Many active traders make the mistake of assuming that a winning system for swing trading stocks needs to be complicated. On the contrary, the best trading strategies are typically the most simple because they can be more easily and consistently followed.

Our methodology for picking stocks is simple, as 99% of the stocks we buy in our model trading portfolio come from one of the following three setups:

1. Combo Setup – The stock must have a combination of great earnings growth and strong technical price action (some type of bullish chart pattern). Typically, these stocks are growing their earnings at a rate of 30 to 40% (or more) quarter after quarter. Furthermore, these stocks will usually have an IBD relative strength rating of 80 or higher. Since we consider these stocks to be A-rated, they can usually be held for several weeks or more.

2. Price momentum - With this swing trade setup, earnings growth is not important, but the stock must have a top relative strength rating (95 or higher) and belong to an industry sector group that is outperforming the S&P 500. These stocks can be held for a few days to a few weeks.

Our recent trade in Celldex Therapuetics ($CLDX), a biotechnology stock with a relative strength rating greater than 95, is a good example of a swing trade setup based purely on momentum (bullish price action). Last month, we netted a 15% gain on our swing trade in $CLDX and will soon be posting an educational video review of that trade on our blog.

3. Blast Off - Neither earnings growth nor a top relative strength rating is necessary with this type of swing trading setup. We are simply looking for a monster spike in volume on the daily chart, combined with a 4% or more gain in that same session. This indicates huge demand. If demand is sharply greater than supply, the price has no choice but to surge higher (which is why volume is such a great technical indicator).

With this setup, the one-day volume spike should be at least 2.5 to 3 times greater than the 50-day moving average of volume. These stocks can be held for a few days to a few weeks (as long as the price action remains excellent).

A current example of the “Combo” setup (#1 above) can be found in Michael Kors Holding Limited ($KORS). So, let’s take a closer look at how this trade meets our parameters.

For starters, the expected earnings growth of $KORS in the coming quarter is 81%, so the requirement for strong earnings growth is definitely covered. Its IBD relative strength rating is only 71, but that is compensated for by the monstrous earnings growth the company has been experiencing. Next, let’s take a look at the technical chart pattern.

After several months of choppy price action, $KORS is starting to come together nicely. Upon completing a 20% pullback off its February 2013 high, $KORS found support at its 200-day moving average, then rallied to reclaim its 50-day moving average last week. Now, $KORS is working on forming a bullish chart pattern known as a “cup and handle,” which looks like this:



As shown on the chart below, $KORS formed the left side of the cup and handle pattern from March to late April, and is now working on the right side of the pattern. The right side of the pattern will need several weeks to develop and form a handle with a proper buy point. During this time, the stock needs to hold above its 50-day moving average as well. This annotated chart of $KORS shows what we are looking for:



YRC Worldwide, Inc. ($YRCW) is a great example of a “Blast Off” setup (#3 above). Notice the huge volume and sharp gap above resistance that occurred last Friday (May 3):



As of the first 30 minutes of trading in today’s session (May 6), $YRCW is trading more than 20% higher than the previous day’s close. Obviously, such a huge follow-up price gap is not common; nevertheless, it shows you just how powerful the “Blast Off” setup can be:



If not already holding this stock, the setup is definitely NOT buyable for swing trading right now (we never chase stocks). However, if/when it forms a proper base of consolidation from here, we can begin to look for a low-risk buy point (at which time we would notify Wagner Daily subscribers of our exact entry, stop, and target prices).

As previously mentioned, we will soon be posting on our stock trading blog an educational review of last month’s winning swing trade in $CLDX, which will be an example of our “Price Momentum” setup.

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New social networking site for finance

Over the weekend, I stumbled across a new social networking site that is just for "finance fanatics."

Apparently, it is a brand new site, but I like the format and think it has potential. There are sections for traders and investors of stocks, options, forex, futures, etfs, etc.

In case anyone interested in checking it out, here's the link.

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How We Gained 15% On A Momentum Swing Trade In $CLDX Stock

On May 6, we shared with you our Top 3 Most Simple & Profitable Buy Setups For Swing Trading Stocks. In that trading strategy article, we showed you an example of a “Combo Setup,” as well as a “Blast Off” setup. For the third type of swing trade setup, the “Price Momentum” trade, we promised we would show you an example of that as well, and here it is.

Recently, we netted an average 15% gain on a momentum stock trade that was held just over 3 weeks.

In this 4-minute swing trading strategy video, we walk you through the technical criteria that prompted the initial buy entry, show you the placement of our protective stop, and explain our rationale for exiting the momentum trade for a solid profit.

For best viewing quality, view in full screen HD mode by clicking the icon on the bottom right of the video player window. Here is the link to the video on YouTube.

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How To Trail Stops On Winning Swing Trades For Maximum Profit

Being a consistently profitable swing trader is a juggling act that requires one to constantly be focused on a variety of key elements of success: picking the right stocks, managing risk, determining when to sell, and even mastering the psychology of trading.

In this educational trading strategy article, we will dive into the topic of knowing how and when to sell winning ETF and stock swing trades for maximum profit, using the example of an actual swing trade we are currently positioned in. As for when to sell losing trades, there’s frankly not much to say other than always have a predetermined stop before entering every trade and simply honor it.

Since April 12, the model trading portfolio of our swing trading newsletter (The Wagner Daily) has been long Market Vectors Semiconductor ETF ($SMH). We initially alerted traders of the technical reasons we were bullish on the semiconductor sector (and $SMH) in this March 28 post on our trading blog. Since then, we have also reminded regular readers of our trading blog several more times about the increasing relative strength in semis.

In the “open positions” section of today’s (May 13) Wagner Daily, subscribing members will notice we have trailed our $SMH protective stop higher for the fourth consecutive day. Because the ETF is already nearing our original target area of $40, while remaining on a very steep angled climb, we have been continually squeezing the stop tighter in order to protect gains, while still allowing for maximum profit.

On the daily chart of $SMH below, we have labeled the increasingly higher stop prices we have used in each of the past four sessions:



As you can see, our stop in each of the past four trading sessions has been raised to just below the low of the prior day’s session. Whenever an ETF or stock is nearing your target area and you wish to maximize profits while still protecting gains, setting a stop just below the previous day’s low (allowing for a tiny bit of “wiggle room”) is a great strategy. This is because basic technical analysis states the prior day’s lows and highs act as very near-term support and resistance (respectively).

By using this method for trailing stops, you will be out of a winning position before the start of a significant pullback, while still allowing the gains to build as long as buying momentum remains. This system also provides an objective way for knowing when to close a winning swing trade, rather than guessing and potentially leaving significant profits on the table.

Of course, there are many different ways to manage exits on winning momentum trades, and some of those methods are equally as effective as what is explained above. The reality is that any trading system can be a great one if the trader proves to be profitable with it over the long-term (even if the system involves trading by the cycles of the moon).

As such, we would never imply that our system is absolutely the best way to manage stops on winning swing trades. But what we truly love about our exit strategy is its utter simplicity; simple trading strategies are the easiest to follow and thereby profit from. Why complicate a technique that has already been proven to work so well?

[morpheustrading]

How We Gained 9% Selling Short Gold Into The Bounce – Trading Strategy

Yesterday, we sold our swing trade in DB Gold Double Short ($DZZ), a “short ETF” that inversely tracks the price of spot gold, for a solid gain of 9% over a two-week holding period. Since the trade followed through as anticipated, we thought it would be helpful to share an educational technical review of why we originally entered the trade and subsequently sold when we did.

For several months prior to entering this trade, we had been closely monitoring the price action of SPDR Gold Trust ($GLD), an ETF proxy for the price of spot gold. Specifically, we were expecting $GLD to eventually break down below major horizontal price support around the $150 level. The trade idea was originally mentioned in this March 18 blog post, and then again on April 29.

The breakdown we were planning for finally occurred on April 12, which led to a massive drop of 13% over the course of just two days. But since the April 12 decline was so large, and because we run an end-of-day swing trading service, we were unable to immediately take advantage of selling short the breakdown in $GLD (or buying the breakout in $DZZ). However, we were not really concerned because we knew we would probably get a second chance.

Whenever a stock or ETF experiences a massive drop within a very short period of time, it will typically make a substantial counter-trend bounce shortly thereafter. When that bounce occurs, traders and investors who got stuck and did not sell for one reason or another sell into strength of the bounce, hoping to minimize their losses. It is this “overhead supply” that prevents the equity from moving higher in the near-term, which subsequently attracts the bears who start selling short.

The end result of all the selling into strength of the bounce is that the recovery attempt is usually short-lived. What happens next is that the price will typically head back down to at least re-test the prior low before stabilizing. There are exceptions, of course, but it is highly unusual for a stock or ETF to experience a huge plunge, bounce off the lows, and not subsequently fall back down to test the prior lows at least once. It is this knowledge that prompted our short sale of gold as it bounced into resistance of its 20-day exponential moving average, then started heading back down.

On the chart of $DZZ below, we have annotated our entry and exit points, which will make it easy to understand the concept above. Since our entry was into an inverse ETF, the price action is opposite of $GLD. Therefore, our entry was on a pullback from the highs, rather than a bounce off the lows:



As you can see, we bought $DZZ on May 1, after it gapped above the previous day’s high. When buying a pullback to support (or selling short a bounce into resistance), we always wait for price confirmation that the dominant trend is likely to resume. The confirmation we are looking for is either a big, ugly reversal bar or a substantial opening gap in the direction of the dominant trend.

The fact that we always patiently wait for such price confirmation is the reason we did not immediately buy $DZZ on its first touch of support of its 20-day exponential moving average (beige line) three days prior. Entering before the price confirmation occurs is always riskier because there is no confirmation that the counter-trend move is finished. Therefore, we happily give up a bit of the trade’s profit potential in return for a lower-risk entry point.

The initial protective stop was set at $5.49. We set the stop at this price because it was below convergence of the low of the pullback (intraday low of April 26) and support of the 20-day EMA. After the gap up of May 1, we did not want to see the price action break below that convergence of support, so we set the stop below that level, including some “wiggle room” below the exact price of the low.

Finally, as for the exit point, our target on this type of momentum trade is simply a retest of the prior swing high (or prior swing low if selling short). As such, we set a target price of $6.40 going into yesterday’s session (just one cent shy of the April 15 high). Gapping higher on the open, $DZZ neatly hit that target and we sold.

Although $DZZ could go on to set a new high from here, that was not the intention of the trade at the time of entry. Rather, we were simply looking to catch a substantial piece of the first move back in the direction of the dominant trend. Furthermore, the odds of $DZZ going to a new high are much lower than the odds of it simply going back to retest its prior highs because now there is resistance of a major swing high (support of a key swing low in $GLD).

[morpheustrading]

Top 5 Qualities Of The Best Stock Breakouts – Trading Strategy

When buying breakouts of growth stocks, one of the three main techniques of our momentum swing trading system, there are certain technical criteria we look for because all the best stock breakouts share the same traits.

Last week (May 17), we sold a breakout swing trade in Pandora Media ($P) for a net gain of 14% with a holding period of less than three weeks. Prior to buy entry on May 1, the stock possessed the top 5 technical traits for breakout buying, which we have listed below (see the first chart below for a visual reference):

High volume gap - On March 8, the stock gapped sharply higher to close the day with an 18% gain. Most importantly, volume spiked to approximately 700% its 50-day average level. When stocks score such a massive one-day gain that is accompanied by a monster surge in volume, it is undeniably the footprint of institutional buying (which we always want to see on the long side).

20-day MA > 50-day MA - During the formation of the base of consolidation that followed the March 8 gap, the 20-day exponential moving average remained above the 50-day moving average the entire team. This is a sign that the uptrend technically remains solid.

Tight base above 50-day MA - As $P was forming its base, the 50-day moving average was rising up to meet the price. When that occurred, the stock touched and held key support of its 50-day MA several times. Simultaneously, the base began tightening up, which is typically a precursor to a breakout.

First base after reversal off lows - This was the first real base that $P formed since its big reversal off the late 2012 lows (around 8 dollars). The first stage bases often have the highest odds of a successful breakout because the momentum of the new uptrend is just ramping up.

IPO - Although not a requirement of breakout setups, one bonus is that $P recently launched as an IPO in 2011. If strong earnings growth and momentum exists, IPOs have a tendency to make explosive moves because of the lack of overhead supply (resistance).

Below is the daily chart of $P, as it looked at the time of our breakout buy entry:



After we determined that a valid base of consolidation had formed, we then focused on determining exactly when to buy. The technical factors that helped us drill down to a precision entry point were:

A “higher low” formed within the base (second touch of the 50-day MA)
Price broke out above the 6-week downtrend line started by the May 8 high
A tight range formed immediately upon breaking out above the downtrend line
The technical signals above told us it was the proper time to stalk $P for potential swing trade buy entry. In the May 1 issue of The Wagner Daily, we told subscribing members we would be buying $P if it traded above $14.18 (just above the April 30 high).

As anticipated, the stock triggered our buy entry that day, and we were long at an entry price of $14.20. The chart below shows our entry point, the subsequent price action, and our eventual exit point a few weeks later:



As $P began climbing higher, our plan was to hold the swing trade as long as the price held above the steep uptrend line that formed on the hourly chart (similar to the way we recently trailed a stop to maximize gains on our swing trade of $SMH).

On the close of May 16, we raised the stop to just below that day’s low because we observed “stalling” action over the preceding two days and wanted to protect our profits. An analyst downgrade caused $P to gap down and hit our tightened stop on the open of May 17, but our sale at $16.17 still allowed us to lock in a nice 14% gain on the trade. This was just a bit less than the usual 20 to 25% gains we typically seek to achieve with breakout momentum trades.