In the July 8 issue of The Wagner Daily, we pointed out iShares Japan Index ($EWJ) as a potential swing trade on the long side. At the time, $EWJ had recovered back above both its 20 and 50-day moving averages, after undergoing a 13% correction from the highs of May 2013.

$EWJ gained approximately 4% over the following two weeks, as the index began working its way back to its prior highs. Now, $EWJ has pulled back to new horizontal price support of its early July breakout, thereby providing us with a low-risk swing trade buy entry. The setup is shown on the daily chart of $EWJ below:



As you can see, $EWJ gapped down to "undercut" support of its 20-day exponential moving average (beige line) yesterday. More significant support of its 50-day moving average (teal line) lies just below.

From here, we anticipate a quick recovery back above yesterday's high, which would put $EWJ back above its 20-day EMA as well. If that happens, we will buy the ETF with the expectation that the next leg up will enable $EWJ to break out to a fresh multi-year high and resume its dominant uptrend that has been in place throughout most of 2013.

Because most international ETFs (like $EWJ) realize most of their gains in the form of opening gaps due to overseas trading, please note we will NOT be using the 5-minute opening gap rules for this trade setup. As long as $EWJ trades above our buy stop price, we will buy it (even if it gaps more than 1.3% above the entry). Regular subscribers to our nightly ETF and stock trading newsletter should note the "watchlist" section of today's report for our exact entry and exit prices of this trade setup.

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.