A Closer Look At Our ETF Trades: ProShares UltraShort QQQ, SPDR Gold Trust, PowerShares QQQ Trust, Series 1

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February 27, 2013 11:43am NASDAQ:QQQ NYSE:GLD

sellbuyAs per the plan discussed in yesterday’s ETF trading commentary, we established a new short position in PowerShares QQQ Trust, Series 1 (NASDAQ:QQQ) yesterday by buying (going long) the inversely correlated ProShares UltraShort QQQ (NASDAQ:QID). Although $QQQ could grind its way higher over the next

few days, there is plenty of overhead resistance and supply around the $67 area, as shown on the daily chart of $QQQ below:


Even if $QQQ makes its way back above the 50-day moving average, there is a plethora of technical resistance just above the $67 area. First, there is near-term resistance of the declining 20-day exponential moving average (beige line). Next, the horizontal band marks resistance of the 50% to 61.8% Fibonacci retracement levels, as measured from the recent swing high down to the February 25 low (here’s a primer on Fibonacci). Additional resistance will be found at the low of the first ugly reversal bar from February 20 (around $67). Finally, all through January, $QQQ struggled to clear the $67 area.

SPDR Gold Trust (NYSEARCA:GLD), an ETF proxy for the spot gold commodity, has taken a beating over the past two weeks. This occurred after $GLD broke down below support of its prior long-term uptrend line, rallied back into new resistance of that broken trend line, then stalled out. Remember that a prior level of support always becomes the new level of resistance, after the support is broken. On the monthly chart below, a good example of this basic tenet of technical analysis can be plainly seen:


On the shorter-term daily chart (not shown), $GLD has also failed to hold long-term support of its 200-day moving average. Now, the $150 area is a key support level because, if it does not hold, $GLD will have confirmed a break of its long-term uptrend line. The weekly line chart below is a great view of the long-term price action since 2009:


A clear breakdown below the $150 level will put $GLD in distribution phase (institutional selling), which could lead to a series of “lower highs” and “lower lows” emerging on the weekly chart over the next several months.

Although we are monitoring $GLD as a potential short selling candidate, the current chart is not actionable because there is not a reliable, low-risk short selling entry point in place. However, if we see a proper entry point in the coming days, we will be sure to notify subscribers of The Wagner Dailyour ETF and stock picking newsletter, of our exact entry, stop, and target prices for this technical swing trade setup (we may actually buy the inversely correlated gold ETF instead).

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