Since my last column, where I analyzed key support levels in the main stock market indexes, broad market conditions have deteriorated significantly. Now, all five of the main stock market indexes are trading below key intermediate-term support of their 50-day moving averages and my market timing model has given me a confirmed sell signal with regard to overall trades in US markets. Nevertheless, one of the beauties of ETFs is the ability to have a low correlation to the direction of the US markets due to the ability to trade different instruments such as currencies, bonds, commodities, and international ETFs.
One such ETF bucking the trend of the overall weakness in the US markets is Market Vectors Vietnam ETF (VNM). As the S&P 500 Index, Nasdaq, and Dow have moved lower, VNM has been consolidating near its recent highs and is poised to break higher. To begin with, take a look at the daily chart below:
First of all, notice that VNM found support at its 50-day moving average, which is sloping higher. The 20-day exponential moving average is also still trading above the 50-day moving average, which is a bullish sign. The 50-day moving average has crossed above the 200-day moving average, another positive indicator of trend, while the 200-day moving average is beginning to flatten out after trending lower for quite a while. Finally, there has been no heavy volume selling within the base of consolidation, which is also bullish. To get a bigger picture of the trend, it's important to also take a look at the longer-term weekly chart, which is shown below:
Basically, the weekly chart just shows a recent break of the downtrend line around $16. Note the tight 5-week consolidation near the highs of the move, while also observing the near-term two-week pullback around $18. This pullback equates to the first "higher low," and the move above $18 represented the first "higher high." This means this is potentially the second "higher low" and "higher high" if the base of consolidation holds support.
To reiterate, my market timing model is still indicating an overall sell signal, but ETFs with a low correlation to the direction of the main stock market indexes give one the ability to find buying opportunities that can outperform the US stock markets. If buying VNM on a breakout, consider reducing share size in order to minimize risk.
To receive Deron Wagner’s best swing trading ETF and stock picks every day, subscribe to The Wagner Daily swing trading newsletter. Please visit his swing trading blog to learn more about his trading strategy. To read Morpheus Trading, LLC’s disclaimer, click here.