Look For A Potential Trade Entry In The Alerian MLP ETF (AMLP)
Like the previous day, the major indices oscillated in a tight, sideways range throughout the entire session. This time, stocks closed with mixed results, but near the flatline. The Dow Jones Industrial Average ($DJIA) eked out a gain of 0.1%, while the benchmark S&P 500 Index ($SPX) was lower by the same percentage. The Nasdaq Composite ($COMPQ) was unchanged. The small-cap Russell 2000 Index ($RUT) slipped 0.2% and the S&P Midcap 400 Index lost 0.6%. Although small and mid-cap stocks showed slight relative weakness for a second straight day, it was proportionate to the larger gains the indexes achieved during last week’s breakout.
Total volume in the NYSE was 2% higher than the previous day’s level. Turnover in the Nasdaq rose 15%. Since the decline in the S&P 500 was so small, and the volume increase was equally insignificant, we would not label yesterday as a bearish “distribution day.” Further, yesterday’s turnover levels were being compared to Monday’s slow pace of trade that was at least partially due to the Rosh Hashana Jewish holiday. In the NYSE, declining volume exceeded advancing volume by a ratio of 2 to 1. Like the closing price of the index, the Nasdaq ADV/DEC volume ratio was in parity.
Going into today’s session, we have added Alerian MLP ETF (NYSEARCA:AMLP) to our official watchlist for potential ETF trading entry. Below is a the daily chart of this ETF, which is tied to the energy infrastructure sector:
On the chart above, notice the clearly defined price resistance at the $16.60 level. A rally above the tight consolidation of the past several days would correspond to a breakout above this level, which would trigger our buy entry (subscribers to our swing trader newsletter should note our exact entry and exit prices for this setup in the ETF Watchlist section of today’s newsletter). Our initial stop is just below the low of the breakout day from September 14, but we plan to raise the stop, at least on partial share size, as soon as this trade triggers for buy entry and starts moving higher. Now, take a look at the longer-term weekly chart pattern of AMLP as well:
With individual stocks in healthy markets, we primarily focus on buying breakouts of consolidation in stocks trading near their highs and buying short-term pullbacks to technical levels of price support. However, because ETFs are a slightly different animal, we sometimes trade trend reversals of ETFs breaking out of intermediate to long-term downtrends, which is the result of institutional sector rotation. Once we spot a longer-term trend reversal that meets our criteria (the ETF is not trading at absolute lows, moving averages have started turning higher, etc.), we then look for a low-risk, buyable pattern on the daily chart. We have both of these factors in place with AMLP.
We have been noticing a lot of trend reversals and sudden relative strength in select international ETFs, particularly among a few different Emerging Markets ETFs. As such, we have added iShares Emerging Markets Index ($EEM) to our ETF Watchlist for today (along with AMLP). In tomorrow’s ETF technical analysis and commentary, we will analyze the chart pattern of this trade setup, and also highlight a few other international ETFs with potentially buyable chart patterns for short-term trading. One benefit of international ETFs is that they have a slightly lower correlation to the direction of the stock market than standard industry sector ETFs that are tied to the performance of the US stock portfolios that comprise them.