In last week's commentary, we mentioned iShares MSCI Emerging Markets Index Fund ($EEM) as a potential pullback buy if it can hold above intermediate-term support of its 50-day moving average. On Thursday (February 7), $EEM "undercut" its 50-day moving average, but snapped back above it the following day. This is shown on the daily chart below:



As annotated on the chart above, there are a few things we are looking for in order to present us with an ideal entry point into $EEM. In order to breakout above its downtrend line, $EEM must rally above last week's high. If it does, that will coincide with a rally above resistance of its 20-day exponential moving average as well (the beige line).

Since last week's "undercut" of the 50-day moving average had the effect of shaking out the "weak hands," a subsequent rally above last week's high would likely cause $EEM to surge sharply higher due to less overhead supply. As regular subscribers should note in the ETF Watchlist section of today's report, we initially plan to enter with half position size, then add the remaining shares after $EEM sets a higher "swing low" with a reliable entry point. Our exact trigger, stop, and target prices for this ETF swing trade setup are also listed for members in the watchlist section.

After gapping higher on the open last Friday, the Nasdaq Composite Index stalled at the prior high of last September and traded in a tight range the rest of day. The Nasdaq's test of its September 2012 high is shown on the weekly chart below:



It will be interesting to see how the Nasdaq reacts to resistance of the 3,196 level this week. This week's performance of $AAPL, a heavily weighted component within the Nasdaq, may be the key to a successful Nasdaq breakout. If $AAPL manages to reverse back above its 50-day moving average, it could provide a much-needed spark to the Nasdaq. Overall, the S&P 500 Index is still top dog in the current rally, as financials, homebuilders/construction, and energy stocks have been leading the broad market higher.

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.