In our ETF trading commentary of February 14, we initially pointed out the potential swing trade setup in Guggenheim Solar ETF ($TAN). At the time, the ETF had just broken out above a tight, month-long base of consolidation, and we were looking for a low-risk false breakout buy entry. But rather than pulling back to probe below the breakout pivot, $TAN held firmly above the breakout pivot and closed the week strong. This is shown on the weekly chart of $TAN below:



As you can see above, the ETF breakout was confirmed by a weekly close above resistance of $19.60, as well a sharp increase in volume.

Rather than looking for a false breakout entry that we initially discussed, we are now stalking $TAN for a secondary buy entry point on a slight pullback to the area of the breakout pivot (around $19.60). On the shorter-term daily chart interval below, the pink horizontal line marks the target pullback area for our secondary entry point. For this type of swing trade entry, we will use a "buy limit" order:



If $TAN does pull back slightly, we would view the price action as constructive as long as it holds above near-term support of its 20-day exponential moving average. The protective stop price can also be clearly defined with this type of trade setup, and has been provided to regular subscribers of The Wagner Daily newsletter.

Another ETF on our radar screen right now is iShares Taiwan Index ($EWT). After several months of base building, $EWT has formed a tight trading range on the weekly chart:



Note the tight consolidation on the weekly chart that has been building for the past 10-weeks. Whether we are looking at a monthly, weekly, daily, or even intraday chart, the basic idea for breakout trades is always the same; we simply need to see a tightening of the price action above or around the major moving averages. Additionally, we always look for the formation of at least one "higher low" to develop within the base.

Ideally, we would like to see $EWT pull back one more time and test the $13-$13.60 level. We are already "officially" long $EWT in our model ETF portfolio, but we plan to add to our existing position if the ETF clears the $13.80 level on a pick up in volume:



During any strong advance in the broad market, there will always be a few shakeouts along the way. We also know from experience that it is never easy to keep holding long positions when the market is extended. However, this is why we continually focus on the performance of leading individual stocks and ETFs, as well as the distribution day count (of the major averages), to gauge the ongoing health of a rally.

As recently explained in this January 30 post on our trading blog, we really never care whether or not the market is seemingly "overbought". Remember to always trade what you see, not what you think!

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.