Market volatility has picked up the past two days, with Tuesday's gap up followed by Wednesday's gap down. Despite the weak start, stocks rallied in the afternoon to close in the upper half of the day's range. Volume increased on both exchanges, producing a distribution day for both the S&P 500 and Nasdaq, which were down 0.7% and 0.6% respectively. Although volume did pick up, the averages did not close at the lows of the day, indicating that buyers were stepping in on weakness (and that is a positive).

Our ETF scans have not produced much in the way of actionable setups as of late, with most markets still extended in the short-term and in need of a few more weeks of consolidation. Market Vectors Vietnam ETF ($VNM) is a good example of this, as it needs another week or two of sideways action (above $20) to produce a low risk buy setup:



After an ugly selloff in 2011, $VNM is beginning to build momentum to the upside with the 50-day MA crossing above the 200-day MA in January. Since finding support at the the rising 200-day MA in late April, $VNM has broken the downtrend line of the consolidation and reclaimed the 50-day MA.

Note that the 20-day EMA of $VNM is now back above the 50-day MA. The 50-day MA should eventually begin to trend higher as long as the price action holds above $20. There is no actionable setup right now, but we will continue to monitor the price action.

After breaking out to new highs in May, iShares Dow Jones Transportation Average ($IYT) has pulled back to the 20-day EMA. We view the 20-day EMA as a line in the sand on new breakouts. If the 20-day EMA holds, then the uptrend should resume shortly. If the 20-day EMA does not hold, then the odds begin to favor a longer consolidation:



If $IYT breaks the 20-day EMA, then we could see a touch of the 10-week MA (on weekly chart) around $111. It is way too soon to say it is a buy at the 10-week MA, but if the price action dips to that level and holds we may be able to grab a low risk entry point.

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.