Deron Wagner likes the pattern developing in U.S. Oil Fund (USO), an ETF designed to roughly track the price of crude oil commodity futures.

There is a complete lack of overhead supply to hold down an ETF or stock at a fresh all-time high. This is why stocks and ETFs at new highs typically continue much higher than the average investor might expect before eventually pulling back.

It is significant that the DJIA, S&P 500 and the Nasdaq Composite are all moving in unison and appear poised to test the highs established in late April of this year. Broad market convergence suggests that the bulls are in control.

Thursday's internals provide another indication that the market is consolidating for another rally.

With so many ETFs extended, Deron Wagner is focused on locating low-risk pullback entries and or breakouts from tight continuation patterns.

Since yesterday's rally corresponded with significant technical breakout levels in the major indices, there is a good possibility stocks will now start working on another leg higher.

Bullish sentiment may slowly be changing, so caution on the long side remains in order. But the major indices' consolidation patterns near their recent highs favors the bulls, and could lead to another leg up in the near-term.

Market Vectors Brazil Small Cap (BRF) provides an excellent example of tight consolidation preceding a breakout to new highs.

Both the S&P 500 and Nasdaq registered a bearish distribution day on Thursday. Prudent traders may want to consider tightening stops on existing long positions with significant correlation to broad market direction.

Alternative energy is one industry that has suddenly started showing a lot of relative strength, indicating that institutions have begun rotating funds into the sector.