Morpheus Trading: Stocks sold off across the board on Wednesday, but the losses were contained for the most part, with the lagging Dow Jones the biggest loser on the day at -0.7%. Turnover was lighter on both exchanges, so the S&P 500 and NASDAQ avoided a bearish distribution day. With the exception of the NASDAQ Composite, most averages appear to be headed for an undercut of the 20-day EMA within the next few days, which would probably scare off the weak longs. Regardless of the broad market price action, one should pay attention to individual stock and ETF action to determine the exit.
Although current market conditions are bullish, it doesn’t hurt to do a little scouting on the short side so that we are prepared if/when our timing model shifts back into sell mode. After topping out with the broad market in May, iShares Dow Jones US Real Estate (NYSEARCA:IYR) has shown significant relative weakness to the S&P 500 over the past few months. In our analysis below, we cover the inverted ETF ProShares UltraShort Real Estate (NYSEARCA:SRS), which is close to signaling a reversal of trend on the weekly chart below.
If $SRS can break above the prior swing high just below $25, then it will confirm the first higher swing low that was put in a few weeks ago. Also, note that the 10-week MA is now trending higher but still below the 40-week MA. If the 10ma can cross above the 40ma and hold, then this will provide more confirmation that a trend reversal is underway. While it is still too early to enter $SRS, it certainly will remain on our radar.
We have tightened up the stops on several winning ETF and stock positions to lock in gains in the event of further selling in the broad market.
This article is brought to you courtesy of Morpheus Trading, LLC.