After forming a bullish reversal candle on big volume during the second week of October, iShares U.S. Basic Materials ETF ($IYM) broke out to new 52-week highs on heavy volume the following week. On the weekly chart below, notice how the "undercut" of the 10-week moving average (blue line) enabled $IYM to surge higher thereafter:



On the shorter-term daily chart, a sharp move off key support of the 50-day moving average subsequently found resistance around $78, where $IYM has since been forming a bull flag type consolidation (a shallow correction by time, not price):



We are looking for $IYM to hold above near-term support of its 10-day moving average (minus a shakeout day or two), and resume its uptrend within the next few days.

As such, we are placing $IYM on today's watchlist. Paid subscribers of our ETF and stock trading newsletter should note our exact, predetermined entry, stop, and target prices for this trade setup in today's report.

As discussed in yesterday's commentary about sector rotation, funds continue rotating into the S&P 500 and Dow, while the NASDAQ and small-caps are now lagging.

Nevertheless, the NASDAQ is still in good shape with recent breakaway gap ups in $GOOG and $AMZN working.

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.