Monday saw some profit taking in extended industry ETFs, most notably the Biotech ETF ($IBB), which closed -2.6% lower on a pickup in volume.

Yesterday's selling was broad-based, with all major averages closing in negative territory. Still, damage was limited to -0.4% in the S&P 500 vs -0.8% in the Nasdaq. Small and mid-cap socks were hit the hardest, with a -1.8% loss in the Russell 2000. With the Russell 2000 stalling at prior highs, we can now expect a few weeks of chop while it digests the recent move up.

It's tough to compare Monday's volume to last Thursday's half session, but we are leaning towards yesterday being a "distribution day" (higher volume selling). Nevertheless, a few distribution days are perfectly normal in a healthy rally.

Since the selling action in March and April was ugly, we believe $IBB will have to put in a few weeks of consolidation before it attempts to breakout to new highs. The consolidation could be anywhere from three to six weeks or more. Ideally, such a consolidation would hold around the $245 area. A move back down to the 200-day MA would not be ideal and could lead to further selling.



As mentioned above, biotech ETF ($IBB) sold off on higher volume, which could potentially signal the end of the current rally off the 200-day MA in the short-term. There was quite a bit of resistance in the $260 area, so to have the price action stall out here is logical.

Most ETFs in our stock scans are a bit extended and need a week or two to produce breakout or pullback entry points. One ETF on our internal buy watchlist is Junior Gold Miners ETF ($GDXJ), which has put in a cup with handle type pattern the past four months.



After ripping through the 10 and 40-week MAs on big volume, $GDXJ stalled out just below the prior high and is now in consolidation mode. The price action might be ready to move higher within the next week or two or sooner, but we'd like to see the volume dry up a bit before heading higher.

Note that the 10-week MA has already crossed above the 40-week MA, which is a bullish trend reversal signal. The 40-week MA has flattened out as well and may begin to turn up soon.

We are monitoring the price action in $GDXJ for a low-risk entry point. As always, we will alert subscribing members of our nightly trading newsletter with our exact entry, stop, and target prices if/when the ETF meets our criteria for buy entry.

Although Michael Kors ($KORS) has been relatively weak vs the market in June, the price action has stabilized and could potentially form a higher swing low (if it stays above 85.71). The 10-day MA has turned up, which is a good sign in the short-term, but the chart has plenty of work to do in order to build momentum.



We are placing $KORS on today's watchlist, looking for the price action to reclaim the 50-day MA in the short-term and hold above $91.

$KORS does report earnings in early August, so the chart may not do much of anything until then, which is why we going with reduced share size.

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.