The major averages chopped around in a tight range on Thursday, closing near the highs of the prior day's candle on light volume. As long as the volume is quiet, it is bullish for a market to digest gains with a few days of rest after a strong advance. With four out of five major averages setting new 52-week highs, the current rally is beginning to build momentum. We could potentially see a multi-month rally develop from here; but as you may know, we shy away from predictions and prefer to take it one day at a time.

Powershares Water Resource Portfolio ($PHO) has broken out from a six-month long consolidation this week. The breakout also set a new all-time high, as evidenced by the monthly chart below.

Normally, a breakout to a new 52-week high by itself is powerful, but when combined with a breakout to new all-time highs, it has explosive potential:



On the weekly chart below, notice how $PHO found support at the rising 40-week MA twice during the consolidation. We also see higher swing lows within the base, and a tightening of the price action prior to the breakout.

Another bullish sign is the dry up in volume within the base, which occurs when most investors give up on the price action after several weeks of trendless chop. Very often, we will see volume quiet down and a tightening of price action right before the breakout:



We are looking for a short-term pullback within the next few days, which could give us a low-risk buy entry in $PHO. Regular subscribers to The Wagner Daily should note our exact entry, stop, and target prices for the $PHO setup in the "watchlist" section of today's report.

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.