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Yesterday, on above average volume, the ProShares UltraShort Euro (EUO) gapped below its 50-day MA but recovered to close near session highs. With this “undercut” in place, EUO is now positioned for a possible recovery. Although it is too early to make the call for a long entry in EUO, yesterday’s price action has put the first piece of a potential long setup in place. What we will be looking for now is price stabilization at the current level and the formation of a setup that will give us the proper reward to risk ratio, in order to enter the trade. The pink candlesticks represent the type of price action that would provide an opportunity for a potential long entry. An “inside” candle followed by a false breakout would be just what the doctor ordered. Then, a move above the high of the false breakout candle would give us a legitimate entry.

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The SPDR S&P Regional Bank ETF (KRE) was one of the first ETFs to find higher ground in the first leg of this recent rally. Although it has been showing weakness to the market over the past several days, KRE has been consolidating in a tight range. This type of basing action is exactly with strong ETFs do prior to another move higher. On Tuesday, KRE undercut support and formed a distinct reversal candle and given today’s positive price action, it appears ready for a move higher. A surge above the three day high at $26.72 could provide a buy entry trigger for KRE.

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On Monday the SPDR S&P Oil and Gas Exploration ETF (XOP) surged above its 200-day MA on a burst of volume. Yesterday, this ETF lost support of this key moving average before recovering into the close, to close near session highs. Yesterday’s shakeout move and recovery in XOP, suggests that this ETF may be prepared for a move higher. This is exactly the type of price action we like to see prior to a breakout. A move above the two day high of $55.59 could provide a buy entry trigger for XOP. We will be watching this setup carefully for a possible long entry.

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The S&P Select Consumer Staples ETF (XLP) has been consolidating along its 20-day EMA since pulling back on January 13th. Over the past four sessions this ETF has formed four reversal candles, as it has consistently held support at the 20-day EMA. A move above the January 19th high of $32.46 could present a buying opportunity in XLP. We are placing XLP on the watchlist. Trade details are available in the watchlist segment of the newsletter.

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On a big burst of volume on January 18th, the SPDR S&P Retail ETF (XRT) broke out from a six week consolidation range. It followed through to the upside on the January 19th and formed an inside candle last Friday. We are stalking this ETF for a possible long entry. Ideally, we would like to see XRT form a pennant formation with a sequence of higher lows (scenario #1), or have it pull back and test its 20-day EMA before moving higher (scenario #2). We are monitoring this ETF carefully for a potential long entry.

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Yesterday, via an intraday alert we entered a long position in the Direxion Daily Gold Miners Fund (DUST) as it rallied above the two day high ($38.50) on the highest volume it has seen in 13 sessions. On January 17th, DUST formed a long reversal candle, as it undercut the 50-day MA and then rallied to close near session highs just below resistance of the 20-day EMA and the 200-day MA. Then on January 18th, DUST formed an inside candle as it trade near the January 17th highs in a tight range. Trade details are available to our members in the open positions segment of the newsletter.

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The Direxion Daily Financial Bull 3x Shares (FAS), on a burst of volume yesterday, rallied to close just below the four day high of $77.63. FAS has been consolidating in tight range for the past six sessions just above its 10-day moving average. In a strong market, it is not unusual for ETFs to track the 10-day, rather than the 20-day moving average, for extended periods of time. This ETF is on the cusp of breaking out. If the market cooperates and FAS sees solid volume tomorrow, it could present a buying opportunity above the four day high. We are placing FAS on the watchlist. Trade details can be found in the watchlist section of the newsletter.

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Over the past four sessions the S&P Select Financial SPDR ETF (XLF) has attempted unsuccessfully to reclaim its 200-day MA and break rally above its long term downtrend line that began in February 2011. Yesterday, XLF formed a reversal candle and closed below both of these key resistance marks. Further, over the past two sessions, XLF has for the first time in several weeks, begun to exhibit relative weakness to the broad market. A move below yesterdays low of $13.66 could provide a shorting opportunity in this ETF. Although we are not placing SKF on the watchlist (nor are we inclined to go short), XLF could provide a quick trading opportunity. Tthe ProShares UltraShort Financial ETF (SKF) is a potential inverse proxy for XLF.

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The semiconductor sector has shown relative strength recently, as it has been one of the top ten sectors we follow. However, on Friday this sector showed relative weakness as it closed near session lows. The strongest ETF in the semiconductor space has been the Market Vectors Semiconductor ETF. Nonetheless, it too on Friday, sold off to close near session lows. SMH could offer a buying opportunity into a pullback at the its 200-day, 50-day and 20-day moving averages. We will be following SMH closely for a possible buy entry.

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Yesterday, via an intraday alert we entered a long position in the Direxion Small Cap Bull 3x (TNA). We liked the trade because TNA sold off, tested the three day low, and reversed on a big spike in volume to close at session highs. Further, it closed above resistance at the two day high. The trade also closed in the money. Trade details are posted for our subscribers in the open positions segment of the newsletter.

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