Yesterday, on a pop in volume, the ProShares UltraShort Basic Materials ETF (SMN) rallied through key resistance and closed in the upper third of its intraday range. If market conditions remain weak, SMN could offer a buying opportunity but only if it pulls back and holds support near the recent breakout. Gap ups make it difficult to enter trades, as the skew the reward to risk ratio.

A review of the major indices shows that we are at critical support levels across the board. Notice that we are not only at support of major moving averages but also testing support of important trend lines. Both the S&P 500 and the Dow Jones Industrial Average are toying with support of both their intermediate and long term trend lines (Long term trend bold black line. Intermediate trend line dashed). If the market is to head higher from here, it is likely that we will undercut these key support levels before the next move higher. However, the possibility now exists that we could set a lower low on each of the major indices, which could place us in the midst of at least a short term trend reversal. We are looking to exercise caution under the current conditions.

Although we are not at the point of making a bearish call on the market, on ETF that is showing considerable relative weakness is the Market Vectors Gold Miners ETF (GDX). Over the past month, as the broad market has rallied, GDX has entered a clear downtrend. If the market provides us with a sell signal sometime soon, GDX could provide an excellent shorting opportunity on a bounce into resistance. Although we are not yet looking to take on short exposure, it’s always good to be prepared for a shift in market conditions.

Yesterday, via an intraday alert, we opened a long position in the ProShares UltraShort 20+ Year Treasury (TBT). Since breaking out of a six month trading range and setting a new swing high on March 19th, TBT pulled back into support of its 20-day EMA. On March 30th, TBT formed a reversal candle as it undercut its 20-day EMA but recovered to close near session highs. The March 30th high provided the perfect entry point for a long entry in TBT. Trade details are available to our subscribers in the open positions segment of the newsletter.

Listed below are the key support and resistance levels in the broad market averages (daily and weekly charts of the DJIA, Nasdaq and S&P 500). Yesterday, the Dow Jones Industrial Average set a new 52-week intraday and closing high. However, the DJIA was unable to break out of its three week trading range and the move occurred on light volume. We wouldn’t be surprised to see a failed breakout at the 13,300 mark if the Dow is to move to significantly higher ground. If the Dow can take out the 13,300 mark, the next big resistance is near 13,800 (see weekly chart). Support levels on the DJIA include the 20-day EMA (13,120), the 50-day MA (12,950) and the swing lows at 13,030 and 13,000.

Last Thursday, the SPDR S&P Regional Bank ETF (KRE) set a higher low, as it formed a reversal candle on bigger volume. Further, it tested and held support of its 20-day MA. A move above the two day high of $28.78 could present a buying opportunity in this ETF.

Yesterday, IYR formed a second consecutive reversal candle and now appears ready to make a move higher. Notice how IYR undercut but reversed to hold support of the five day low. Also notice that this occurred on an uptick in volume. All of these factors bode well for IYR if it can find its way back above Wednesday’s high of $61.89. IYR provides an excellent example of why we don’t exit trades before they hit their stops. It’s easy to “choke off” a trade when the pressure is on. Markets often turn on a dime and you must be able to sit through some pain in order to realize potentially bigger gains. Anyone not yet in IYR, could consider entering the trade above this key resistance level.

The Market Vectors Vietnam ETF (VNM) has been in a basing pattern since February 24th of this year. VNM has been selling off for the past two days and appears likely to test the swing low of $19.08 formed on March 24th. Ideally, we would like to see a reversal candle form on an undercut of this key mark. Alternatively, VNM could stabilize at the current level and reclaim the 20-day EMA. Regardless, a move above the three day high of $20.14 could present a buying opportunity in this ETF.

Over the past three weeks, the iShares MSCI South Korea Index (EWY) has been setting a sequence of higher lows, as it has tested support near its 50-day MA on two occasions. EWY could provide a long entry on a move above the two day high of $60.20. An ideal setup for EWY would involve this ETF setting a higher low by undercutting its 20-day EMA and then reversing through the $60.20 mark (see purple arrows). We will be monitoring EWY closely for a possible long entry.

Yesterday, on a burst in volume, the iShares MSCI Taiwan Index Fund (EWT) undercut its 20-day MA and recovered to close at session highs. A move above the two day high of $13.54 could provide a buy entry trigger in this ETF. We are monitoring the setup closely for a possible long entry.