Over the past two days, the small cap Russell 2000 has shown relative strength while the S&P 500 has struggled. This subtle shift (if it continues) could suggest that small cap stocks are ready to lead the market higher after taking a back seat to the S&P 500 and Dow in October and November.

Since breaking through an important support level at $150, SPDR Gold Trust ($GLD) has been in distribution mode. Over the past five months, $GLD has formed a bearish base just below the declining 10-month MA, which is like the 200-day moving average on the daily chart.

It has really been a mix bag in terms of stock performance the past two weeks. Some stocks have pushed to new highs while others have struggled to hold obvious support levels. Last week’s distribution day put quite a dent into the current rally, and further distribution this week could force our timing model into neutral mode.

After breaking the monthly downtrend line, First Trust ISE Revere Natural Gas ($FCG) stalled out just above $20 and is now in basing mode. Note that the 10-month MA (which is like a 200-day MA) is clearly trending higher after six months of consolidation.

What would it take for our timing model to produce a sell signal? A clear sell signal would be generated if most major averages and leading stocks were both under heavy distribution, and major averages were below the 50-day moving average.

One could argue that there was some distribution in the NASDAQ Composite as well, as the reversal off the highs on higher volume is a sign of churning. Yesterday’s action tells us that the market may continue to chop around for a while, as averages like the Midcap S&P 400 backed away from the swing high.

In yesterday’s report we discussed the bullish price action in iShares MSCI South Korea ($EWY). In sticking with the Asian theme, tonight’s report will focus on iShares MSCI Hong Kong Index Fund ($EWH) and PowerShares Golden Dragon China ($PGJ)

Friday’s close put the Dow Jones back above the 10 and 20-day moving averages (joining all other major averages). The NASDAQ 100 was the only major average to establish a new swing high. Volume was light on both exchanges. However, there is clearly enough bullish momentum in the market right now, so we are much more concerned with heavy volume down days than light volume up days.

First Trust ISE Cloud Computing Index Fund ($SKYY) has formed a bullish 7-week base near the highs. Note the bullish support at the 50-day MA during the consolidation. Volume has really dried up this week which is also a bullish sign, as Thursday’s volume the lowest volume $SKYY has seen in several months.

We have two new buy setups on today’s ETF watchlist. The first setup is a buy off the lows of a seven-week base in the Global X Social Media Index ETF ($SOCL).