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Going into today, US Oil Fund ($USO) is a new ETF swing trade setup on our watchlist for potential buy entry. In case you are not familiar with it, $USO is a commodity ETF that approximately tracks the price of crude oil futures contracts.

For nearly a year, the price of crude has been in a choppy, sloppy sideways range, but there now appears to be a changing of the guards shaping up.

If the bullish price action we have been observing follows through, we could see a dominant trend reversal that could at least lead to a new intermediate-term uptrend in crude oil. This is shown on the weekly chart pattern of $USO below:

(click to enlarge)

On the weekly chart, notice that $USO broke out above resistance of its downtrend line a few weeks ago. This followed an "undercut" of its November 2012 lows that happened in April 2013. That move likely had the effect of washing out the last of the "weak hands" who wanted out, thereby absorbing overhead supply that will now enable $USO to more easily move higher.

Zooming into the shorter-term daily chart of $USO, we see that the ETF broke out above resistance of its short-term downtrend line (from the April 2 high) just two days ago and is holding the breakout:

(click to enlarge)

Although it obviously may have been better to buy on the actual day of the June 14 gap up, this ETF is still not too far gone to provide a decent buy entry with a positive reward-risk ratio. As such, subscribing members of The Wagner Daily should note our exact and preset trigger, stop, and target prices for this trade setup in the "Watchlist" section of today's swing trader report. As always, subscribers will be notified if/when we buy $USO.

By the way, one benefit of trading commodity ETFs such as $USO is they frequently have a low correlation to the direction of the major indices such as the S&P 500 and Nasdaq. Therefore, regardless of the stock market's next move, $USO is capable of doing its own thing.

Why does it matter if $USO has a low correlation to the broad market? It is important to know because trading such ETFs may help lower overall risk in portfolios that may be too dependent on the direction of the broad market.

In addition to commodity ETFs, currency ETFs, fixed-income ETFs, and (to a lesser degree) international ETFs can provide the same benefit of low US stock market correlation.

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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 Daily (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 or may not buy, sell or have positions 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.

© 2002-2013 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.

Since mid-April, one of the strongest industry sector ETFs in the market has been Market Vectors Semiconductor ($SMH). We initially bought this ETF when it broke out back in April, sold into strength for a 9% gain several weeks later, then re-entered with partial share size after it began pulling back (May 23).

As the broad market has been consolidating and digesting its recent gains over the past month, $SMH has been holding up well and we remain long our partial position from the May 23 entry. However, now that the 50-day moving average has finally risen to meet the price of $SMH, we are also prepared to add to the swing trade position, in anticipation of a pending resumption of its new uptrend and a breakout to a new 52-week high.

Below is the daily chart pattern of $SMH:

(click to enlarge)

As you can see, the June 13 intraday low in $SMH nearly coincided with a kiss of its rising 50-day MA (teal line). When an ETF or stock with relative strength breaks out of a base, the first subsequent pullback to the 50-day MA typically presents a low-risk buying opportunity because it is this level where institutions often step back in to buy.

Rarely will the first retracement to a 50-day MA that follows a substantial breakout fail to hold up on the first test (although "undercuts" of one or two days are common). As such, subscribing members of our swing trader newsletter should note we have listed $SMH as a potential buy entry. Please see the "Watchlist" section of today's report for our exact trigger, stop, and target prices for this setup.

In this June 6 blog post, we pointed out the "triple convergence of support" that was forming in the S&P 500. Specifically, we highlighted how key intermediate-term support of the 50-day moving average, dominant uptrend line, and horizontal price support from the prior highs were all merging together. To refresh your mind, here is the exact chart of the S&P 500 SPDR ($SPY) we showed that day:

(click to enlarge)

The very next day, the S&P 500 "undercut" that area of support on an intraday basis, but formed a bullish reversal candle to close above it. Such a bounce was not surprising, as the more technical indicators that converge to form support, the more significant that support becomes.

After the formation of that triple convergence of support on the S&P 500, we indeed expected a bounce, but also still expected the broad market to consolidate a bit longer before resuming its uptrend. Now that stocks have been trading in a range for the past few weeks, the 50-day moving average has again risen up to provide support for $SPY (just like the $SMH chart). Here is the current snapshot of $SPY:

(click to enlarge)

The charts of both $SMH and $SPY above are great examples of the significance of the 50-day moving average as an intermediate-term indicator of support. However, it's important to realize that stocks and ETFs are more likely to bounce off the 50-day MA if it is only the first touch of the 50-day MA that follows a convincing breakout from a valid base of support.

Each subsequent test of the 50-day MA that occurs before the index or stock breaks out to another high technically weakens support of the 50-day MA and thereby increases the odds of a breakdown below it. As such, it would be a negative sign for the market if $SPY and/or $SMH break down below the June 13 lows (which would correspond to a break of the 50-day MAs).

As long as the major indices and leading sectors hold their 50-day MAs while continuing to consolidate, stocks still technically look good for another move higher, which would pick up where the April to May rally left off.

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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 Daily (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 or may not buy, sell or have positions 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.

© 2002-2013 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.

On the morning of May 23, one day after the first significant broad market decline in more than a month, we targeted both Guggenheim Solar ETF ($TAN) and Market Vectors Semiconductor ($SMH) for potential pullback buy entry in our Wagner Daily newsletter (these two ETFs were actually pointed out as potential pullback entries in this May 22 blog post one day earlier).

Because bearish follow-through momentum from the May 22 sell-off carried through into the May 23 open (as anticipated), both ETF swing trade setups triggered for "official" pullback buy entry, and have been acting well since then.

As of this moment, the rather volatile $TAN is already showing an unrealized gain of 8.9% since our May 23 buy entry of $23.45 (where we grabbed some shares on a pullback to the 10-day MA). From here, we would ideally like to see the ETF build a base of consolidation near the highs, then breakout to a new high within the next several weeks.

The other trade we entered on the May 23 open was $SMH, which we swiped at $37.68 as it pulled back to test substantial near-term support of its 20-day exponential moving average (for the first time since its breakout).

The following day, $SMH formed a bullish "hammer" candlestick and closed above its 20-day EMA for the second straight day. The daily chart below illustrates this (based on most recent closing price of May 24):

(click to enlarge)

Based on the healthy pullback of $SMH that is holding the 20-day EMA, the ETF should be well positioned to climb back to the highs as long as the broad market holds steady.

If we get a little bit of help from the market, in the form of a bounce this week, $SMH should be among the first industry sector ETFs to outperform due to the relative strength $SMH was exhibiting on the way up. An added bonus is that we are now back into this ETF at a much lower price than our most recent exit at $38.44, when we sold $SMH for a 9% gain on May 13.

On May 6, iShares Malaysia Index Fund ($EWM) gapped up 6% to a fresh all-time high. Since this was a confirmed breakaway gap, we have been stalking this ETF for the past several weeks, waiting for a base of consolidation to form and the moving averages to rise up and provide support.

Last Friday (May 24), $EWM gapped down to "undercut" support of its 20-day exponential moving average:

(click to enlarge)

From here, we will be watching to see if $EWM forms some sort of bullish reversal bar and closes back above the 20-day EMA. If it does, it could present a possible buying opportunity the following day (above the prior day's high). For now, it is not actionable on today's watchlist, but we will be sure to notify subscribers of our nightly swing trade newsletter if/when we decide to buy as an "official" swing trade on our watchlist.

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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 Daily (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 or may not buy, sell or have positions 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.

© 2002-2013 Morpheus Trading, LLC
Reproduction without permission is strictly prohibited.