Gasoline ETF Set to Motor Higher

02/02/2009 10:56 am EST

Focus: ETFS

Deron Wagner

Founder and Head Portfolio Manager, Morpheus Trading Group

While the broad market was busy selling off this past Thursday (January 29), even bonds, often considered a "safe haven" for parking cash, took a hit. This caused the popular iShares Barclays 20+ Year Treasury Bond ETF (TLT) to lose 2.3% that day. But money flowing out of stocks and bonds found a home in gold that day, as the SPDR Gold Trust ETF (GLD) zoomed 2.4% higher. Viewing a 15-minute percentage change chart below, notice how nicely GLD trended higher all session, while the S&P 500 and TLT tanked:

Gold Double Long (DGP) and Market Vectors Gold Miners (GDX), our two gold-related long positions in the model portfolio of The Wagner Daily, both closed more than 5% higher on Thursday. DGP subsequently rallied another 3.6% on Friday, closing the week at a fresh multi-month high. Since our original January 15 buy entry, when it bounced off its 50-day moving average, DGP is already showing a large, unrealized gain of 30% (4.6 points). Given the recent breakout above its six-month downtrend line, which we pointed out in last week's Wagner Weekly, the bullish momentum in DGP is not surprising. The strong price action of DGP is shown on the daily chart below:

On Thursday, January 29, we bought US Gasoline Fund (UGA), an ETF designed to track, in percentage terms, the movements of gasoline prices. Our entry was based on a breakout above the high of the right shoulder of an "inverse head and shoulders," a bullish daily chart pattern. This also correlated to the 20-day exponential moving average, crossing above the 50-day moving average, while UGA consolidated above both levels. Here is a snapshot of what the setup looked like the morning of our buy entry:

Since UGA has not yet moved much above our entry price, it's still valid for buy entry near its current price level of $23.42 (right at the high of the consolidation). Significantly higher volume on both Thursday and Friday may indicate accumulation that leads to a high-momentum, upward thrust in the coming week.

By Deron Wagner of Morpheus Trading Group

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