Morpheus Trading: Relative strength returned to the NASDAQ Composite and Russell 2000 last week, as the S&P 500 and Dow Jones stalled out. The stalling in the S&P 500 suggests the benchmark index may need a short-term pullback or, at the very least, a few days of choppy action that could lead to a test of the rising 10-day moving average (normal pullback action).
After multiple touches at the 40-week moving average since last June, E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA:MLPL), has formed a bullish, six-month base of consolidation.
On the weekly chart below, notice how the price action has tightened up nicely over the past few weeks, while holding support of its 10-week moving average (similar to the 50-day moving average). Further, the 10-week MA remained above the 40-week MA during the entire consolidation, and is now trending higher:
Below, the longer-term monthly chart of $MLPL clearly shows how the price action tightened up during November, as it is a very small candlestick bar (from high to low) when compared to the prior month:
We anticipate that a close above the downtrend line of $MLPL (shown on the first chart above) could spark a move to new all-time highs. As such, we have placed $MLPL on today’s watchlist.
Although financial stocks reversed lower into the close of last Friday’s holiday-shortened session (along with the S&P 500), our existing long position in Direxion Financial Bull 3x (NYSEARCA:FAS) remains in good shape. As with the S&P 500 Index, a short-term pullback should enable $FAS to find support at its rising 10-day moving average:
We have been long $FAS since November 14, when we bought at $78.70. Presently, the 20-day exponential moving average is sitting at 80.76, which means it is already above both the high of its last base ($80.58) and our entry point.
Whenever a major moving average climbs above our entry point in a trade, it is a bullish sign because it means there is more support to defend our entry. In turn, this allows us to be more patient with the price action.
This article is brought to you courtesy of Morpheus Trading, LLC.