Morpheus Trading: After a day and a half rally off the lows, the broad market averages sold off in the afternoon and closed well off the highs of the day. The averages are extended on the hourly chart and may need to consolidate a bit more to allow the 20-period EMA on the 60-minute chart to catch up.
The Nasdaq Composite reclaimed the 50-day MA, but volume was light.
The Russell 2000 bounced into the 20-day EMA and 200-day MA, so it may need a few days of sideways action before it can clear 1,150.
The S&P 500 is about 0.5% away from the declining 20-day EMA, and about 1% away from significant resistance in the 1,955 to 1,965 area, where the lows of a prior range and the 50-day MA converge.
As far as potential ETF trade setups, we are monitoring a few breakout setups in $PIN and $FDN:
Although we sold out of Powershares India ($PIN) last week, we still like the price action, as it has held up quite well. We wouldn’t mind a little shakeout below $21, which could spark a rally that breaks the short-term downtrend line:
The Dow Jones Internet Index ($FDN) was hit hard earlier this year, but has since rallied about 16% off the lows and formed a tight-ranged consolidation above the rising 10 and 40-week MAs. The 10-week MA also recently crossed above the 40-week MA, which is a bullish sign:
The pattern in $FDN is setting up nicely and could be ready to launch higher within the next week or two. Since $FDN took such a hit off the highs, we would not look for much more than a move to the prior highs ($64ish) as a target.