The weekly chart of SPDR S&P Bank ETF ($KBE) shows a tightening of the price action since March of last year. As shown on the weekly chart below, notice how the distance from each "swing high" to "swing low" has tightened up. This is the type of price action we look for in all bullish consolidation patterns, regardless if it is a weekly, daily, or intraday chart. The recent breakout above horizontal price resistance of the $24.75 level is a swing trading buy signal:



Dropping down to the shorter-term daily chart interval, we see the bullish gap higher on January 2, which eventually led the ETF to breakout above the highs of its consolidation. Like the broad market averages, $KBE has failed to extend much beyond the breakout level; however, the price action has once again tightened up nicely on the daily chart, while holding above the $24.75 breakout pivot. The buy stop in $KBE is simply over the highs of the current range. Since our required technical criteria for new breakout entry has been met, we have added $KBE to our watchlist as a potential swing trade entry today. Regular subscribers of The Wagner Daily swing trader service should note the ETF Watchlist section of today's report for our clearly predefined trigger, stop, and target prices for this new ETF trade setup:



Overall, the broad-based indexes, stocks, and ETFs continue to chop around in a tight range, with buyers stepping in on intraday dips, but there has not yet been enough momentum to generate much follow through. The daily chart of the S&P 500 Index pretty much sums up the action, as it shows four days in a row of little to no fluctuation in the closing price.

Although the major averages have thus far failed to follow through to the upside from the January 2 gap up, we have yet to see any clear-cut distribution (higher volume selling) enter the broad market. As such, our rule-based stock market timing model remains on a "buy" signal. With no distribution (higher volume selling) on board, we must continue to operate with a bullish bias. Moreover, we need to let technical trade setups continue to develop, while giving our open ETF and stock positions enough breathing room to hold them. We will tighten our protective stops when it makes sense to do so, but we can't be in a hurry to raise our stops and choke our winning swing trades off when conditions are good.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.