After breaking out last week above the highs of the base and downtrend line, Direxion Daily Financial Bull 3X Shares ($FAS) is pulling back on lighter volume (so far) and should find support around $76. This is where the downtrend line and rising 10-day MA are converging. As shown below, the setup may need two to three more days in pullback mode before it is ready to buy:



Like $FAS, the SPDR S&P Retail ETF ($XRT) is also in pullback mode after breaking out to new highs. We look for the price action to hold the rising 10-day MA, which coincides with the breakout pivot near $83 and the downtrend line. When we say "hold," we do not mean that it can't go below the 10-day MA, as the price action can and usually will "undercut" a rising moving average to shake out the weak longs:



Our current long position in the PowerShares Aerospace and Defense ETF ($PPA) held up well yesterday, setting a new all-time closing high on a strong volume. Our long positions in $PHO and $IYZ are also holding up well.

However, our long entry in iShares Japan ($EWJ) failed Tuesday's breakout attempt, with a sharp reversal down to the 20-day exponential moving average. There is support in the $11.50 - $11.85 area, as the price action should hold above the 50-day MA for the trade to remain valid.

With the main stock market indexes potentially pulling back in by price, or settling into a sideways range (correcting by time), the price reaction to the first touch of their 10-day moving averages will be quite important.

The pullbacks that followed the last two rallies in the market failed to hold the 10-day moving averages, which led to a pullback to the 50-day moving averages in subsequent weeks.

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.