Coal ETF Heating Up For

Going into today, we’re stalking a new potential ETF buy entry in Market Vectors Coal ETF (KOL). After being in downtrend from April 2011 until September 2012, KOL is now setting up as a short-term, momentum-based bullish trend reversal play.

On the daily chart below, notice that the 20 day moving averages recently crossed above the 50 day moving average, which is a bullish signal, although the 200-day moving average (orange line above the current price) has not yet started sloping higher. Nevertheless, there is a clearly defined area of horizontal price support and daily chart, and the ETF is also formed a pattern that is similar to an inverse head and shoulders.

The head and shoulders chart pattern is bearish when it forms near the highs after an extended rally, and usually leads to new near-term lows. Conversely, an inverse head and shoulders is bullish when it forms around the near-term lows of a protracted downtrend, and will frequently lead to new “swing highs.” On the chart below, we have annotated the components of the inverse head and shoulders pattern.

As such, we are adding KOL as an “official” trade setup today:


In addition to being an inverse head and shoulders pattern, notice that the right shoulder is higher than the left shoulder. This tells us there were less sellers on the pullback after the formation of the head. A higher right shoulder than the left shoulder with this type of pattern is a bullish indicator. Although this is a trade setup for a long position, the fact it is a commodity ETF means the play has relatively low correlation to the direction of the broad market. Otherwise, we would not be looking at bullish trade setups because our market timing model remains in “sell” mode at the present moment.

Yesterday, our existing long position in Global X Silver Miners ETF (SIL) got off to a rough start in the morning, but reversed to close near its intraday high, this resulted in the formation of a bullish hammer candlestick pattern that also “undercut” key intermediate-term support of its 50-day moving average. This is exactly type of price actually like to see during periods of consolidation, as it serves to shake out the “weak hands” who typically sell when stocks and ETFs break obvious technical levels of price support. If you are a new subscriber or happened to miss our initial buy entry, SIL presents a low-risk buy entry on a rally above yesterday’s high (around the $24.45 level).

At the time of this writing, all eyes are focused on the results of the US presidential election. However, we encourage you not to get too wrapped up in the results and its perceived impact on the market. Other than perhaps a short-term, knee-jerk reaction, the winner of each presidential election typically has much less to do with the future direction of the stock market than one may wish to believe. Rather, it is technical analysis and time cycles that really determines the direction of the market’s next move.

Some subscribers to our swing trading service do not follow our actual entry and exit points for our stock and ETF swing trade setups, but rather subscribe to The Wagner Daily to benefit from our reliable system for market timing. If this is you, be assured it is technically not yet the time to re-enter the market and start buying your favorite stocks and ETFs. As mentioned in yesterday’s stock commentary section of our newsletter, it is simply too easy to dig yourself into a whole when trying to fight the dominant broad market trend. Still, we realize market conditions can change quickly, so we’ll be sure to alert subscribers if/when our market timing signal shifts back into “neutral” or “buy” mode.

Original post