Look For A Possible Buy Entry In The First Trust Health Care AlphaDEX ETF (FXH)

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July 5, 2012 9:53am NYSE:FXH NYSE:ITB

In a Holiday shortened session, stocks closed higher yesterday. All five major indices closed near session highs. The light volume rally was led by a 1.3% on the small-cap Russell 2000 and a 1.2% gain on the S&P MidCap 400. The Nasdaq tacked on a solid


0.8%, while both the DJIA and S&P 500 advanced by 0.6%.

Internals were mixed across the board on Tuesday. As would be expected entering the July 4th Holiday, volume dropped on the Nasdaq by almost 15.0% and on the NYSE by 37.0%. However, advancing volume topped declining volume by a factor of about 2.0 to 1 on both exchanges. With respect to market internals, little useful information can be derived from shortened sessions.

Over the past five sessions, First Trust Health Care AlphaDEX ETF (NYSEARCA:FXH) has rallied into resistance near its previous swing high of $31.45. Over the past two sessions, FXH has show signs of pulling back from this key mark. FXH offers a buying opportunity under two scenarios. The first would be a pullback buy entry into support of the 20-day EMA and the uptrend line. An alternative entry could develop if FXH consolidates just below resistance over the next 5 to 10 days. Under either circumstance, we would only enter a long position in this ETF if it provide an appropriate “setup”. Typically we will look to enter above a reversal candle, much like the one formed on June 18th. Given the relative strength exhibited by this ETF (It’s near a 52-week high), we will continue to monitor it closely for a possible buy entry.

FXH

During the market’s recent move higher, the homebuilder sector has shown significant strength, as it has led the advance by ralling to fresh 52-week highs. By extension, the iShares Dow Jones U.S. Home Construction ETF (NYSEARCA:ITB) now offers a potential buying opportunity on a pullback to support of its 10-day and 20-day moving averages. As with FXH, we will only look to enter a position in ITB if it presents a setup that meets are trading criteria.

ITB

Given the sharp reversal in the market, we wouldn’t be surprised to see a retracement in the market over the next day or two, but we would also expect for it to occur on lighter volume. Light volume retracements are what tell us that Bulls remain in control of the market.

The commentary above is an excerpt from The Wagner Daily newsletter, which we have been publishing since 2002. Subscribers to the full version receive our exact entry and exit prices for swing trades of the top ETF and stock picks, access to our market timing model, and more. To get started today, sign up for your 30-day risk-free trial to our Wagner Daily stock newsletter or visit our trading blog to learn more about our proven technical trading strategy.


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