With the stock market extended in the short-term, our nightly stock scans have not produced much in the way of actionable, low-risk swing trade setups. A two to three-day pullback in the major averages to the area of the rising 10-day moving averages would certainly help.

Our focus during a potential pullback would be on ETFs and stocks with relative strength that are trading above or near their 52-week highs. First Trust DJ Internet Index Fund ($FDN) has been trading near its 52-week high over the past few weeks, while holding above the 20-day exponential moving average (minus a quick shakeout). The daily chart is shown below:



If the price action continues to retrace from current levels, we could potentially see a pullback entry develop around the 20-day EMA. Ideally, we'd like to see the price hold above the $43.50 area and form a tight, bull flag-like pattern.

The Energy Select Sector SPDR ($XLE) is another ETF near its high, but its price action has wedged higher off the 50-day moving average the past few weeks and looks like it needs another week or two of consolidation:



With $XLE, we would like to see a higher "swing low" form below the 20-day EMA, but above the 50-day MA. A break of the prior swing low may signal that a deeper/longer correction is needed.

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.