The U.S. Oil Fund ETF ($USO) has pulled back to touch support of its 20-day exponential moving average for the first time since breaking out at the beginning of the month. This is shown on the daily chart below:



When an ETF or stock breaks out, the first retracement to the 20-day EMA usually presents a low-risk buying opportunity (as detailed in my book, Trading ETFs: Gaining An Edge With Technical Analysis). In this case, the buy setup is even more clearly defined because of the "hammer" type candlestick that formed last Friday. This allows traders to place a buy stop just above the July 26 high, while placing a tight protective stop below the intraday low (plus substantial "wiggle room").

In our swing trade newsletter (click here for a risk-free trial subscription), we are already long $USO from our original July 5 buy entry. However, as noted for regular subscribers on today's "watchlist," we will add shares to our existing position on a rally above the July 26 high.

We will be keeping a tighter stop on the added shares of $USO, while keeping a looser stop on the original position (since we are long from 3% lower than the current price). Traders who missed our initial entry for any reason may wish to take larger exposure than our partial shares added, but just be sure to respect risk by maintaining a stop within your predefined risk parameters (suggested maximum risk for experienced traders is 1% to 2% of account equity per trade).

Neither ETF trade setup on last Friday's watchlist triggered for buy entry on July 26, as both $EWJ and $GSG failed to rally above their July 25 highs. However, both ETFs remain on our watchlist as we enter the new week and with adjusted buy trigger and stop prices (see the watchlist for details). $EWJ now offers an even more positive reward-risk ratio (if it triggers) because it has pulled back to close right at support of its 50-day moving average. $GSG "undercut" convergence of its 20 and 200-day moving averages and formed a bullish "hammer" candlestick pattern.

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.