A Technical Look At The Direxion Daily China Bull 3x Shares ETF (YINN)

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August 12, 2013 11:43am NYSE:YINN

new etfsMorpheus Trading:  In our August 7 ETF commentary, we highlighted a potential trade setup that was developing in Direxion Daily China Bull 3x ($YINN), an international ETF tied of the performance of the Chinese stock market (and leveraged

to move at 3x the underlying securities). To refresh your mind, here is the technical explanation of the setup, as well as the charts we showed at that time:

As shown on the weekly chart below, notice that $YINN has just broken out above major resistance of its prior highs from January 2013, after four consecutive weeks of massive gains. Now, the ETF is starting to pull back from its recent parabolic run:

$YINN weekly chart pattern

The horizontal line that marks prior resistance of the January 2013 highs should now serve as the new support level on the pullback. However, $YINN will likely “undercut” that support level, which would shake out the “weak hands.”

Next, take a look at the shorter-term daily chart:

$YINN daily chart pattern

Despite the current pullback off the highs, $YINN is still trading above both its 10 and 20-day moving averages. This is a sign of major relative strength.

Since horizontal price support (from the weekly chart) is around the $21.65 and the 10-day moving average is presently at $21.39, we would anticipate a pullback to the $21 – $21.50 area (an “undercut” of support).

Presently, $YINN is not actionable. However, it’s a good one to put one your radar screen. As for entry, we ideally would like to see the formation of a bullish reversal candle coincide with a pullback that undercuts support. If that happens, it would provide us with a low-risk buy entry point above the high of the reversal candle. But for now, we will just have to wait and see how the price action develops.

As expected, $YINN pulled back to a low of $20.90 in the first session that followed our initial analysis. This is shown on the current daily chart below:

$YINN chart

Because of the pullback to $20.90, the trade setup technically met our criteria by retracing to “undercut” support. However, we did not immediately buy $YINN the following day because there was no bullish reversal candle.

Nevertheless, because of the strong gap up on August 8 and the tight, sideways action that followed on August 9, this ETF swing trade setup is indeed now actionable.

This article is brought to you courtesy of Morpheus Trading, LLC.

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