In early May, we sold short spot gold through buying Gold Double Short ($DZZ), an inversely correlated "short ETF." The trade worked out well, as we sold short gold when it bounced into resistance of its 20-day exponential moving average, which followed a massive break of key support. We subsequently covered about two weeks later for a gain of nearly 10%.

Since closing that trade, gold has been oscillating in a range, near its lows, and is now poised to once again break down below a key level of support. This is shown on the daily chart of SPDR Gold Trust ($GLD) below:



As you can see, $GLD closed right at crucial horizontal price support of its mid-April and mid-May lows. In the coming days, we will be monitoring $GLD for a potential breakdown below this support level. If a convincing break of support occurs, we will then look to sell short $GLD (or buy $DZZ) on a subsequent bounce into new resistance of that prior support level.

Although some aggressive traders like to sell short the actual break of support, rather than waiting for a bounce, we have learned over the years that such an entry in a short position can be risky because false breakdowns occur rather frequently. Instead, a much lower risk entry point is to wait for the breakdown to occur, then look for a short entry into the bounce (just as we did with our trade in early May). To learn more about our strategy for selling short stocks and ETFs that are breaking down, take a look at this educational article on our blog.

Yesterday, we said we ideally would like to see Guggenheim Solar ETF ($TAN) pull back to near-term support of its 20-day exponential moving average, which would provide us with a lower risk buy entry point than buying a breakout above the downtrend line. Due to the broad-based selloff, $TAN indeed gave us the pullback we were looking for:



Despite yesterday's decline in the stock market, the chart pattern of $TAN continues to show great relative strength. As such, we still like $TAN for potential swing trade buy entry. Subscribing members of The Wagner Daily should note our updated stop price in today's newsletter. Because of its relative strength, we expect $TAN to be one of the first ETFs to surge higher when the broad market bounces again. But if $TAN fails to move above yesterday's high, there is no harm done because we simply will wait to buy.

US Oil Fund ($USO) did not trigger yesterday, but remains on our watchlist as well. As it trades sideways, near the highs of its recent breakout, the 20-day exponential moving average is rising to provide support and increase the odds of a successful trade.

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.