The monthly chart of iShares Dow Jones US Telecom ($IYZ) below shows a recent breakout above a significant resistance level at $26 earlier this year.

Since then, the price action has chopped around in a tight range above the prior highs of the last base. A breakout above the recent range could spark a rally to or near the prior highs of 2007, around the $32-33 area:



Drilling down to the weekly chart, we see a strong uptrend with several higher highs and higher lows in place, along with a rising 10-week and 40-week moving average:



In addition to the strong uptrend with moving average confirmation, we also see a bullish, 3-month consolidation that has been holding above the rising 10-week moving average, with the past few weeks really tightening up.

That tightening action over a few weeks is typically what we look for in all basing patterns that we want to buy. The longer the tightening price action continues, the more powerful the eventual breakout will be.

Because $IYZ meets our technical criteria for buy entry, we are placing the ETF on today's watchlist as a potential, intermediate-term swing trade. Paid subscribers of The Wagner Daily newsletter (available at http://www.morpheustrading.com) should note our exact entry, stop, and target prices for this trade setup in 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.