In the May 20th Seasonal Forecaster newsletter, I focused on EEM, the iShares MSCI Emerging Markets ETF, and the fact it had quieted down, more than usual.
Bollinger Bands overlaid on the 30-minute chart (I fine-tuned them for a 2.2 Standard Deviation band) had tightened quite a bit. A breakout was imminent.
I suggested a different way to trade a breakout:
“But there is a more interesting approach. Investment advisors often recommend you steer clear of ‘leveraged' ETFs in your portfolio. Because of how they can be constructed, that is good advice for investors. Short-term trading is another matter. There are two leveraged ETFs on Emerging Markets, similar to the EEM. EDC is the Direxion Daily Emrg Mkts Bull 3X Shares ETF, and EDZ is the Direxion Daily Emrg Mkts Bear 3X Shares…
“For a short-term trade only, EDC or EDZ could be traded, once EEM, EDC, or EDZ chooses a direction. For example, buying EFC at the current price, and playing the same move back to the January high, would produce a 14.1% gain, instead of 4.6% with EEM.”
Three days later, EEM did breakout, but on the downside. EDZ, the ETF likely to gain on EEM breaking down, popped up. In the five days since, EDZ has gained 7%.
EEM has fallen to the bottom of its Bollinger Bands envelope, from which it typically rebounds. Stochastics looks like it is about to crossover and generate a buy signal. It is time to close the EDZ position and take the 5-day/7% profit, and wait for an upturn in EEM and its Stochastics. EDC may be the way to trade a move by EEM back to the upper portion of its Bollinger Bands.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
By Gregg Harris, MarketTamer Chief Technical Strategist
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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