Stocks kicked off the new trading year with a bearish distribution day, as the major averages sold off across the board with losses in the -0.8% to -1.1% range. As mentioned yesterday, the market was overbought in the short-term, so we now look for a few days of corrective price action to help produce new buy setups on minor weakness.

One of the few ETFs to close higher yesterday, Global X Greece ETF ($GREK) closed near the highs of a two-month long base. The tight base has formed at 52-week highs. As such, $GREK now looks poised to run to new highs, after failing to breakout above prior highs in February and May of last year:



Prior to breaking out, we look for the action to pull back in and tighten up while holding above the 50-day MA. This tightening of the price action is what we always look for in a quality basing pattern.

We would actually like to see a false breakout in $GREK above the current highs, followed by a three to five bar selloff to scare off all the longs who bought in late. These type of sell-offs can produce low-risk entry points.

Whenever there is distribution in a bullish stock market, we typically see sector rotation flowing out of extended groups and into groups that have been basing out for a few weeks or more. Yesterday, it was very clear that money was flowing into solar stocks with Solar ETF ($TAN) gaining more than 7% on heavy volume. We are currently long one solar stock in our portfolio ($SCTY), which rallied 5% yesterday and is now up over 11% from our entry on 12/19.

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.