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Review of buy entry into Real Estate ETF ($IYR)

March 20, 2012

Long-time followers of our swing trading strategy know we seek to buy stocks and ETFs with relative strength to the main stock market indexes when the broad market is in an uptrend. Two weeks ago, we detected relative strength and a solid consolidation pattern setting up in iShares Real Estate Index ETF ($IYR).  As such, we began stalking IYR for potential swing trade buy entry. The chart below details the technical buy setup prior to our entry:

Because of the clearly defined short-term downtrend line off the highs of the dominant uptrend, we notified subscribers of The Wagner Daily that we would be entering IYR on a breakout above that downtrend line, which occurred on March 12:

On the day of our buy entry (March 12), IYR rallied above the short-term downtrend line. The volume pattern confirmed the move, as turnover was higher than the prior day’s session, and well above the 50-day moving average of volume. The upside follow-through was immediate, as IYR exploded higher on big volume the very next day. Presently, we remain long IYR with a profit that is two times greater than our initial risk, giving us our intended 2 to 1 reward-risk ratio. Now, we will look to sell into strength to lock in gains, while trailing the stop higher to protect the profit. If you’re not yet a subscriber and missed the initial entry, a small pullback to the $62 area (near the March 19 low) would provide a secondary buy entry, albeit with a lower reward-risk ratio.

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