Saturday, October 16, 2010

True Strength Index (TSI) Breakouts - ETFs

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As I am guessing my favorite sector to trade - the precious metal miners - may be taking a short breather for a couple of weeks, I thought it would be interesting to see what else there is to trade that is currently exhibiting a truly first class technical setup.
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For my most ideal setup, 4 conditions are present.  It is rare to find all four of these conditions coexisting at the same time and usually it is enough that only 2 conditions are active.  But sometimes it does happen that 3 or even 4 conditions are active and then it is next to impossible to have a losing trade.
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The four ideal conditions are as follows:
1.  Breakout of the True Strength Index (TSI) indicator trend line
2.  Breakout of the Money Flow Index (MFI) indicator trend line
3.  TSI indicator crossover of the ZERO line (from negative readings to positive)
4.  Positive divergence of the TSI indicator with respect to price movement (indicator rising, price falling)
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I always set my TSI indicator to (7,4).  I always set my MFI indicator to (10).  I always use the software freely available at FreeStockCharts.com for my analysis.
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For today's musing I have revisited my arsenal of double and triple strength ETFs, and found a handful of candidates that I personally will consider buying after this weekend.  These ETFs, in alphabetical order include:  DEE, DNO, DTO, and FAZ.
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So let's get to these 4 charts now, and see which ones look most promising!
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The first ETF will be DB Commodity Double Short ETN (DEE).   I guess it would make sense that as most commodities, such as gold, silver, ag, and oil have been very hot for the past couple of months, they may take a breather with the upcoming market correction - and money can now be made shorting their correction.
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Second is the United States Short Oil Fund (DNO).  This ETF is NOT leveraged.  What an incredible setup this one has!  This is about as good as it ever gets.  










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Third is PowerShares DB Crude Oil Double Short ETN (DTO).  This is a 2X leveraged short ETN and save for the ZERO crossover, which is a scant distance away, this is a perfect setup.








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Fourth and finally will be Direxion Financial Bear 3X Shares (FAZ).  Flawless setup - somebody will make money this week owning FAZ.
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Not sure you want to trade a 3x leveraged ETF?  Maybe consider SKF, which is a 2X short Financial ETF.  Trust me, the setup is identical - I checked.
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I found a couple other ETF themes that also checked out very favorably.  They were Direxion  Daily India Bear 2X (INDZ) and Direxion Daily Retail Bear 2X (RETS).   I did not include them in this post because they trade with quite thin volume and knowing that most of my readers are heavy hitters, well, that would just not be acceptable, would it?
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A recap for this post would be to anticipate weakness this upcoming week in key areas that generally hold the stock market up.  Those themes include commodities, oil, financials and retail.  And a reminder that one can make money when the market goes up.  And one can make just as money when the market goes down.  

7 comments:

  1. John,

    Nice work here.

    Your settings for the TSI indicator of (7,4) and MFI indicator (10).

    Do you use the same settings across all time frames?

    Thanks

    Joe

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  2. Joe -- thanks for the compliment and the question.

    Absolutely yes, I use the same indicator settings across all time frames - 1 minute to 1 week.

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  3. I like those "shorts". It is also a good hedge for those reluctant to sell the PMs. I would appreciate yor thought on Franco Nevada (FNV.TO).

    It has been consolidating sideways for an eternity. Lately however it has been flirting with breaking up and out. TSI looks good. I'm not sure of MFI. Also, it is begining to show relative strength to GDX and another royalty company RGLD. OH and the kicker, it has warrants. One has a strick at 32 and matures March 2012.

    Desclosure - I have a modest position.

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  4. Rick - thanks for your comments and question. The chart on FNV.TO looks fine and you have a nice position with that one. It will make you more money next month if you continue to hold.

    TSI is very high and starting to roll over. MFI has developed a negative divergence (high, but not as high as it was a month ago. The stock has not yet given what, for me, would be a clear short term sell signal, but its close. Unless gold can continue higher rather immediately I would imagine this stock will be trading lower, not higher, this week.

    I will say this: once this stock gets above $35 it will go for quite a ride and quickly. This appears to me to be an excellent position to simply hang onto and enjoy what November will do for it!

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  5. It looks like it may have been too early to short the market yet!

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  6. sorry to question, and im sure that my emotions are getting the best of me- but all the sam: you sure that this market is going to still role over?

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  7. ItGoes - I was a day or so early, is all. Yes, everything is going to continue rolling over for at least a week. Check out DTO +10% today!

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