Leadership from the small cap index returned yesterday, with the Russell 2000 posting a 0.9% gain, as the S&P 500 and Dow Jones were basically flat.

With Tuesday's advance, the Russell has now clearly broken out to new highs. Drawing a trendline connecting the weekly highs on a chart of iShares Russell 2000 ETF ($IWM), the next stop could be around $116:



After breaking out from a 16-week base during the summer, iShares Core MSCI EAFE ETF ($IEFA) has been in trend mode, holding above the rising 10-week moving average.

The current consolidation in $IEFA is a flat base type pattern, where the chart corrects more by time (sideways) than by price. We look for the action to hold above the 10-week MA and eventually break out to new highs:



We like the action in $IEFA because it is in a clear uptrend, with all the major averages pointing in the right direction:



$IEFA held above the 50-day MA and prior swing high during the last pullback.

A break above the downtrend line could spark a move to new highs, but if the price fails to push higher, we could potentially see another slight pullback to $59. If there is a pullback, then we will closely monitor the action for a potential buy entry off a bullish reversal candle.

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.