ETF Trading Opportunities This Week

06/11/2010 12:01 am EST


Market volatility continues to shake things up, making it profitable for traders who are quick to spot key reversal points, manage risk, and take profits before they evaporate. On Tuesday, we saw the market go up and down more than I have seen in a long time. It moved over 5% as it trended up and then down in 1% increments as shown on the chart below. Traders were able to capture a 1%-2% gain, which may not sound like much, but when trading the leveraged ETFs, futures, or CFDs, we are making 4%-200% profit within a few hours. That being said, this type of price action is proof that the market just does not know which way to go and shows why traders must be very quick to enter and exit positions.

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The S&P 500 ETF (SPY) daily chart shows my simple volume analysis during market corrections. During the early stages of a trend, pullbacks are quick and simple. But as a trend matures, we start to see corrections become much more complex. We first saw the simple, one-wave corrections in 2009, then we saw a much deeper three-wave correction, which was enough to shake most retail traders (average Joes) out of the market before heading higher, and now it looks as though we are headed into a complex five-wave correction, which should be enough to shake out the majority again.

It’s important to note that the longer a trend lasts, the larger the corrections/shakeouts must be in order to get everyone out. What I am reading and seeing everywhere online are doom-and-gloom scenarios. In my opinion, this is good. One more leg down should be enough to shake everyone before we see a nice, 10%-20% rally. Once we see that bounce/rally, then we can re-analyze the markets to see if we are headed back up to test the 2010 highs, or if its just a bear market rally. In the end, it does not matter as we play both the long and short side of the market.

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The gold ETF (GLD) continues to unfold as planned. We caught a good chunk of the recent rally and are now in cash waiting for another low-risk entry point in the coming days or weeks.

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The crude oil fund (USO) has been struggling to stay up the past two months. As you can see, the chart below is trading at a key resistance level and at this point, could go either way. I don’t like to get involved in trades when they look to be a 50/50 probability of going each direction. If anything, I would think oil will head back down as the US dollar continues its strong rally.

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In short, the broad market is in a downtrend and selling volume continues to rise. Investors around the world continue to accumulate gold and the US dollar because they seem to be the safe havens for the time being. Oil is also in a downtrend and trading at resistance, which means we should see lower prices for oil and oil companies, and this will weigh heavily on the equities market.

Cash is king during times of uncertainty, that’s for sure. It is very comforting to know we are in cash most of the time and only get involved with the market when there is a low-risk, high-probability setup on the charts.

By Chris Vermeulen of

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