After a heavy volume shakeout beneath the rising 50-day MA on June 24, First Trust DJ Internet Index ($FDN) immediately reversed back above the 50-day MA, which is a bullish sign. In the short term, $FDN may be a bit extended, so we could see some sort of a pullback develop within the next day or two, especially if the price action stalls at the daily downtrend line. We'd like to see a test of support at the 50-day MA (around $45) to produce a low-risk entry point:



Below, the longer-term weekly chart of $FDN shows the current base finding support at the prior highs of the last base, which is constructive price action. We also see the price action in the current base closing above the rising 10-week MA each week. There is also a strong uptrend line in place, where $FDN found support during last week's shakeout:



As for the broad market, the S&P 500 ETF ($SPY) failed to overtake the $161.50 - $162 level for the third day in a row on Monday. In each of the preceding two sessions, the ETF gave back all or most of the morning gains into the close, which is clear stalling action. So far, the only broad-based index index to reclaim support of its 50-day moving average with authority is the small cap Russell 2000. The stalling action of $SPY is shown below:



Because of the afternoon selloff, the morning advance in the $SPY now looks more like a run on stops for those who went short over the weekend (based on Friday's weak close). These short sellers were more than likely stopped out within the first hour of trading on Monday. If there is follow through to the downside in the $SPY this week, then we would like to see a bullish reversal candle form somewhere in the $159 - $160 level (but as you know anything can happen).

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.