I am pleased to introduce to you the MTG Sector Trend Trigger List. Thank you for joining in on this after-hours mini-lesson after a busy day of trading. By the end of this presentation, you will understand the usefulness of the list as a tool to help you make more profitable trades. We will begin by going over the format of the list and will then explain how it can be used and the different ways to read the information.

Let me get started by telling you how and why this list came about. Just like anyone who decided to start trading the market, I began to read all the popular books, attend seminars, and learn about all the aspects of trading. Soon, I began to accumulate a shelf of books and a bunch of freebies from all the tradeshows. I also learned there where too many technical indicators and fundamental factors to consider, interpret, and decipher. After observing several professional traders, I realized they all had one trading characteristic in common. They all traded the simple stuff, the basics, Support and Resistance (S/R), Trendlines, and Moving Averages. For the first two, S/R and trendlines, they are placed on charts by you the user. To place it well, you need practice, lots of it, to discover all the possible chart permutations. Sure there are some linear programs out there that try to do it for you, but nothing beats the human eye. We’ll let those programs plot the moving averages…and there are several different kinds…but that’s another seminar in itself! My specialty with MTG is in plotting trendlines and I have developed a strategy to plot them. This is why we have developed the Sector Trend Trigger List. Please click on the link below to access the latest copy. I will give you a a few seconds to bring the list up on your screen. Here is the link: www.morpheustrading.com/chang/MTGsectortrends030224.pdf

As you can see, the list consists of the widely traded broadbased index ETFs (such as QQQ, SPY, and DIA), the recent issue of Treasury Bond ETFs, a comprehensive list of industry based sector ETFs (such as the HOLDRS), and country-specific international ETFs. The trend is then classified as ascending or descending for each of the ETF categories. The list of ETFs under each category are sorted chronologically by when the trend was first recognized. This is the column labeled The Trend Signal Date. This date reflects the start date of the current trend. To anticipate when the current trend is going to end the opposite trend begins, The Trend Change Date and Price is used. The Trend Change Price acts likes a trigger price such that when the price action crosses that level, a trend change is recognized and that date becomes the new Trend Signal Date. Under the column labeled “Notes” are notations for the current status of the trendline. The trendline can be short or long, however the price action moves dictates the length of the trendline. Therefore, the trendline is dynamic, allowing us to spot short term, intermediate and long term trends. But the terms are relative depending on which time interval bars you’re using. We are using daily bars to plot our trendlines. Here is the PPH trend chart www.morpheustrading.com/chang/PPH.jpg. Note that on Dec.18, 2002, the current descending trend was first recognized symbolized by the red down arrow. The Trend Change Date and Price is symbolized by an ellipse on the chart. The current trendline is always the bold blue line.

Now, let’s discuss how you can use this information to your benefit:

First, look up the meaning of any notations in the Notes column. Here we try to let you know any type of classical chart formations that’s developing, such as double tops, head and shoulders, triangles. Any numbers in the notes column indicates weakness in the trendline. It is either a “0” indicating the current trend is not established with two fixed anchor points or a combination of 1,2, or 3, which means the current trend is weak because the trendline is broken, swing highs and lows or retests are developing. Check here for a glossary of terms: www.morpheustrading.com/chang/glossary.shtml

Second, you can correlate which industry ETF led the broadbased ETF into its current trend. Such as, when SPY, DIA, and IWM reached the descending list, we can see that financial, consumer, wireless, telecom, utilities, and perhaps basic industries led the way.

Third, by listing the Trend Signal Date chronologically, we can evaluate the relative strength between each ETF in its category. The most recent ones on top of the categories for the descending trend are relatively stronger than the previous ETFs. The ETFs on top for the ascending trend list are relatively weak, because they were late to the rally.

Fourth, take a step back and see how each ascending and descending lists are weighted with ETFs. If the list is long, that means there is conviction on the trend supported by several different ETFs.

Fifth, knowing where the broadbased and industry sectors stand, you can take that information to justify your position size. Such as when the majority of the sectors are descending, you can feel more confident to execute a full size short. At the same time, you may want to take ½ size long positions in the environment. During transition periods when the markets are mixed, you may want to consider taking even smaller size positions. We want to be cautious during uncertainty and aggressive when “all the ducks are lined-up”. (no offense to duck fans, quack!…no offense to doctors either!) (no offense to doctors? I don’t get it)

Sixth, use the Trend Change Date and Price to anticipate when the current trend ends and the next reverse one begins. These levels are often swing highs or lows, and are normally associated with support and resistance. As these dates are updated, dates and prices narrows towards the current price, acting much like trailing stops. So the most important point of the seminar here is that we are looking forward to the reversal in trend. That is when the lowest risk trades occur.

Seventh, when the trends are not trending we will also know. That’s when trendlines begin to flip back and forth during a relatively narrow time frame. This indicates choppiness, and warns you against trading that particular ETF. Usually, only one flip will put us on guard, because that would indicate the preceding high or low, or swing high or low was breeched. On these occasions, it is usually better not to open new positions in that ETF.

Lastly, The List as a whole is like a menu to diversify your portfolio. You can build a traditional portfolio composed of equities, bonds, international, and of course cash. I like to use it specifically for my qualified accounts, IRA, Roth IRA, 401K, etc. These are all long position only accounts, so using the List you can decide to buy long, hold off on adding new money into existing positions, or buy long contra funds to capture descending trends. We should all have a trading account and the nest egg (qualified) account. Qualified accounts are usually held for much longer terms, and see very little market activity. Because most accounts offer cost free positioning monthly, we can use that to our advantage by making occasional trades throughout the year. This way, using the MTG Trend Trigger List, we can preserve and build up our nest egg...and hopefully to early retirement for all.

I have an interesting note about portfolio diversification. According to the “Markowitz Efficient Frontier”, a 50% equity and 50% bond portfolio can expect a higher return than a 100% bond portfolio with the same risk exposure. The lowest risk portfolio was composed of 22% equity and 78% bonds.

Some trading strategies can evolve from the List also. Basically, we can set buy stops (for longs) at the Trend Change Price, our trigger price. Set our drawdown exit at the swing low, and profit exits at the Trend Change Price again. Of course, setting target levels, using S/R lines, and trendline breaks, are all valid exit strategies. Using a combination of multiple exit strategies are strongly encouraged.

Morpheus Trading Group will continue to expand and add new features to this weekly service so that clicking on the ETF will bring up an annotated chart on the MTG web site. As the popularity of this new service grows, it is just one more way that we will remain The Leader In ETF Trading!

I’d like to open up the room now for any questions.

MTG Sector Snapshot

Broad market trend commentary:

The trendlines were re-evaluated and we dropped the previous trigger price for DIA and SPY. The swing high developed but it developed after the low, not preceding the low. The trendline is pivoting at the first anchor and is floating on top of the chart without a second anchor. If prices break below the Feb 13th low, then we will definitely locate the second anchor. However, there is no doubt that the Feb 18 high is a key resistance area. We already see a higher low that has formed and now if prices break into new highs, bam!…higher highs! For QQQ, MDY, and IWM, Feb 21 highs are higher than the Feb. 18 levels. Current prices are really close to breaking into new highs, so watch these closely. We continue to like the strength of the QQQ and also MDY and IWM the mid caps and small caps, respectively. IWM never dropped more than 10% away from the trendline. One last observation is that any long positions here have a soft landing if thing go wrong. The swing low make it possible to set stops, for example: DIA $77, QQQ $24, and SPY $82.

The major indices:

(Please consult the Sector Snapshot Glossary for help in understanding the chart annotations below)

CLICK HERE to download this week's "Sector Trend Trigger" list (you will need the free Adobe Acrobat Reader to view the file).

Sector Notes:

The big change in sectors that opened our eyes last week was the bond action. Yes, the sleepy bonds are all ascending. They are all breaking into new highs from the past few months. Also note, The Trend Change Date and Price for several sectors were adjusted last week. One of them (WMH) charted very similarly to the broadbased indices above, but made new lows. Notice the second anchor, marked by the ellipse in mid-Feb swing high. This trendline is now fixed and we already know at what level the next trend change will occur. This is an example of the proper placement of the trendline once a swing high was identified and lows were consequently made.

Closing Thoughts:

I hear a lot of talk about a trader developing discipline. It's a good trait to have for sure, but you also have to be wise at the same time. Following a strict set of rules without being able to adapt to anomalies in life is too limiting. In other words, you can be flexible, but in line with the intent of your strategy. For example, you may want to implement in your strategy a daily routine, such as having breakfast before you trade. It could be a Denny's Grandslam with two eggs and pancakes or simply a glass of OJ. The intent is there. Nourishment in the morning improves performance. As for setting stops, it's okay to change it by a nickel or two; the intent here is to limit your losses and allowing wiggle room for your position. Of course, any significant or material change in the strategy is bad, such as adjusting your nickel stop five times without justification. Hey, at least you're setting one. Once you develop a workable routine for yourself, which you can repeat day after day or week after week, you can call yourself a disciplined trader. This routine encompasses your preparatory work through the executions of your orders. We all have routines we do everyday, so adding another one shouldn't be anything new. So, becoming disciplined is attainable and is not as hard as you may think.

Chris Chang
MTG Associate Editor

Weekly Reality Report

We just finished calculating our performance for the entire month of February and realized we squeaked by with a net gain of 1.87 points for a net profit of $28 (based on the MTG Position Sizing Model). While this is certainly not very exciting, we were pleased to stay above water during the choppy and low-volume month of February. Remember our goal is not to make profits every month, but rather to protect against big losses during the tough months and then net large profits during the good months. So, we'll take breakeven for the month!

Click here for a detailed explanation of how Morpheus Trading Group calculates and reports its trading results.

Below is a summary of the performance of each MTG trade that was closed during the week of February 24 - 28, 2003. Any open positions are not reported until the week they are closed.

Trades from The Wagner Daily:

(1.22) points

MTG Position Sizing Model

150 shares

25%

MTG Position Sizing Model

($131)

Trades from the ETF Real-Time Room:

+ 0.32 point

MTG Position Sizing Model

168 shares

42%

MTG Position Sizing Model

+ $59

Click here to view a detailed cumulative summary of every MTG trade since the end of October, 2002 (updated weekly).

Odds and Ends

I just returned from presenting a seminar on ETF Trading at the Online Trading Expo. in New York City. It went great and it was nice meeting several of our clients. The next Online Trading Expo. is scheduled for July in Chicago. I have again been invited to speak, so I hope to meet more of you at the next expo (www.onlinetradingexpo.com).

Remember that free trials to all MTG services are available by clicking here (limit one per household).

We want to make all of you aware of a discussion thread that Morpheus has started on Elite Trader, a professional online discussion forum for equities traders. It is free to both browse and post messages as long as you register with the site (which is free). The ETF trading discussion thread can be found by searching for the title "Why Actively Trade ETFs?" or by clicking here. You are welcome to use this discussion thread to post your questions and comments about ETF trading because it is a great way for Morpheus to keep in touch with clients and learn from each other as well.

I'm excited to announce the national publication of some new educational trading articles I recently wrote for two magazines. The first article, entitled "Short-term Sector Trading With ETFs," can be found on page 52 of the March issue of Active Trader magazine. The second article, entitled "Navigating Choppy Sideways Markets," begins on page 11 of the February issue of SFO (Stock Futures and Options) magazine. Both issues are now on sale at your favorite newsstand.

As always, thanks for spreading the word about Morpheus Trading Group!

Deron M. Wagner
Founder and President

Morpheus Trading Group
www.morpheustrading.com
The Leader in ETF Trading!

DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Weekly ( hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may buy, sell or have a position in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.