Broad market averages basically chopped around most of the day, with all averages closing in positive territory, but with small gains. The small cap Russell 2000 outperformed, gaining 0.6% on the day against a 0.1% gain in the S&P 500.

With our timing model in buy mode, we continue to search for low-risk breakout or pullback setups. When the market is extended, some traders have a tough time buying stocks out of fear that their entry will "call the top". This is a perfectly natural thought; however, most of the time, good trading decisions go against human nature. That is why following a system and doing the right thing can be so tough. The way we deal with a strong market is simply to focus on individual setups and position management.

$SMH was added to the portfolio yesterday, while our other open ETF positions in Guggenheim Solar ETF ($TAN), US Oil Fund ($USO), and First Trust Internet Index ($FDN) all continue marching higher. Going into today, we have one new buy setup on our ETF trading watchlist in iShares Dow Jones US Medical Devices ($IHI).

$IHI broke out from a two-year long consolidation at the beginning of the year. After stalling out at $76 and chopping around for a few months, $IHI has formed a tight base on top of the last base during the past 8-weeks. Note the strong support at the 10-week MA, which is where the past two consolidations have found support. We often see short consolidations form after a stock or ETF breaks out from a long base. The weekly chart below is a good example of this:



On the daily chart, $IHI has broken the downtrend line of the current base after "shaking out the longs" in mid-June, on a dip below the 50-day MA. Trade details can be found in the watchlist section above. We plan to add to the position on a confirmed breakout above the range highs.

 

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.