This Grains ETF May Be Setting Up For A Low-Risk Buy Entry Point (JJG, XLV)

After gapping higher on the open, the main stock market indexes immediately reversed and surrendered their opening gains within the first half hour of trading. Buyers returned just before midday, sending stock back up to test their opening highs, but the rally attempt fizzled and the broad market drifted back down in the afternoon. The S&P 500 Index ($SPX) slipped 0.1%, while the Nasdaq Composite ($COMPQ) finished higher by 0.1%. The blue-chip Dow Jones Industrial Average ($DJIA) declined 0.3%, though it was positive that the small-cap Russell 2000 Index managed to gain 0.2%. The S&P MidCap 400 lost just 0.1%. Showing apathy into the close, the major indices finished in the bottom third to middle of their intraday ranges.

Yesterday, we pointed out the swing trade setup in SPDR Gold Trust (NYSEARCA:GLD), which we will continue monitoring for potential buy entry in the coming days. Today, we would like to bring your attention to iPath Grains ETN (NYSEARCA:JJG), a completely different commodity ETF with a rather bullish daily chart pattern. Take a look:

$JJG BASING PATTERN

Since its swift, parabolic move from mid-June to mid-July, $JJG has been forming a nice base of consolidation. It has been holding above near-term support of its 20-day exponential moving average and volume has been lighter during the consolidation as well. Last week, $JJG attempted to break out of its basing pattern and move to new highs, but it pulled back after running into resistance of its July 2012 high. With $JJG now retracing from last week’s high, this ETF may be setting up for a low-risk buy entry point within the next few days. If $JJG meets our criteria for a clearly defined buy entry point, we will added to our ETF rading watchlist as an “official” setup.

In the August 24 issue of The Wagner Daily (subscribers may log into the online archives to review it), we pointed out the relative strength in S&P Health Care SPDR (NYSEARCA:XLV). Specifically, both the daily and weekly charts were showing tight consolidation patterns at the highs, which we anticipated would soon lead to a breakout attempt. Yesterday afternoon, $XLV probed above the high of its consolidation, but drifted back down to finish the session in the prior range. As such, the next rally above the August 27 high will be more likely to follow through to the upside. Below is an updated daily chart of the $XLV swing trading setup:

$XLV BASING PATTERN

To recap what we have been analyzing for the past several days, we are presently monitoring the following ETFs for possible entry to our “official” watchlist: SPDR Gold Trust ($GLD), iPath Grains ETN ($JJG), and S&P Health Care SPDR ($XLV). One thing we like about this group of three ETFs is that two of them are commodity ETFs, and therefore have very low correlation to the direction of the overall stock market. Nevertheless, because we expect this week to be another string of very light volume days, we are not exactly thrilled about entering many more new trades ahead of the Labor Day holiday next Monday. When volume eventually returns to the market, momentum will too. With this unofficial watchlist of ETFs we are building, we will be prepared to take advantage of any sharp move in the markets (and we already have two open ETF positions as well).

The commentary above is a shortened version of today’s Wagner Daily, our nightly ETF and stock swing trading newsletter since 2002. Subscribers to the full version receive our best daily ETF and stock picks with preset entry and exit prices, access to our proven trading strategy with market timing system, and access to our “turn key” technical stock screener software. Start your risk-free subscription to our swing trader service for less than $2 per day (based on annual rate) at http://www.morpheustrading.com.

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