Relative strength in semiconductor stocks enabled the sector to break out above range highs yesterday, just a few days after last week's ugly, two-day washout on 10/8 and 10/9. The following chart of Direxion Daily Semiconductor Bull 3X ($SOXL), a leveraged semiconductor ETF, details the shakeout:



The nasty shakeout to the 50-day moving average in $SOXL was followed by a sharp reversal and breakout above range highs yesterday.

In terms of the trend, the moving averages in $SOXL point to a strong uptrend, with the 20-day exponential moving average now above the 50-day moving average, and the 50-day moving average above the 200-day moving average.

All three averages are also trending higher (this moving average analysis can be done on $SMH with the same result), further confirming an uptrend is in place.

As such, we are stalking $SOXL for potential buy entry going into today's session. Paid subscribers of our nightly swing trading newsletter should note our exact entry, stop, and target prices for this trade setup in the "Watchlist" section of today's report.



Since $SOXL is a 3x leveraged product, please note it is not an ETF we would use for an intermediate to long-term hold. However,for our intended purpose of catching a strong 3-6 week advance, it will do just fine

Yesterday, our remaining shares in First Trust ISE Revere Natural Gas ($FCG) hit our sell target of $19.70, prompting us to sell the ETF for a 10.5% price gain over a 2-week holding period. The annotated chart below details our entry and exit prices:



Our original target in $FCG was set at $19.70 because we only intended to capture a relatively quick move in this trade setup. But for traders who feel there is more upside, $FCG can be held for a move to the prior highs of 2011 (just below $22).

On the stock side, we continue to see new breakouts and long setups emerge from our scans, which is a pretty good sign that the market should be headed higher once the guys in Washington wake up.

While so many traders wait on Washington before getting back into the market, we prefer to let the price and volume action lead us in and out of stocks (see why we're not worried about the government shutdown).

For example, one may think that the market is facing big trouble from last week's initial plunge, and one could be right...who really knows for sure.

However, aside from $LNKD cracking support of its 50-day moving average, other leading stocks like $KORS, $SLCA, $YELP, $YY, $MELI, $BLOX, $AMBA, $SFUN, $P, $QIHU, and $NOAH have held up really well.

If half of these market-leading stocks were below their 50-day moving averages and unable to bounce, we would certainly be very cautious, but that is not the case.

Although we are indeed a bit cautious at the moment, and have not been throwing out a ton of buy recommendations to subscribers, we did establish three new long positions last Friday.

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.