Two ETFs Setting Up for Breakouts

As the broad market has been shaping up, I've been looking for new ETF setups that are showing both relative strength to the major indices and bullish chart patterns.

Aside from the various biotechnology ETFs, which continue to consolidate at their highs, there still aren't a lot of industries that meet this criteria. However, the Dow Jones Transportation Average Index Fund (IYT - commentary - Cramer's Take) is one sector ETF that does. Take a look at the daily chart of IYT below:

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Over the past three weeks, IYT has been consolidating in a sideways range, albeit a rather choppy one. But unlike the main stock market indices, IYT is already trading above its 20-, 50- and 200-day moving averages. Further, it is nearing the breakout level above its recent range, which is annotated as the horizontal blue line on the chart above.

With no overhead resistance of key moving averages to contend with, IYT could quickly rally back toward its 52-week high if it clears the high of its consolidation. Giving the play some "wiggle room" to reduce the chance of a "stop hunt," an ideal buy trigger is above the $93.30 area.

A Health Care Play

Prior to now, biotech-specific ETFs, including S&P Biotech SPDR (XBI - commentary - Cramer's Take) and Biotech HOLDRs Trust (BBH - commentary - Cramer's Take), were the only segments of the broad health care arena showing relative strength to the broad market.

But over the past week, health care siblings of the biotech ETFs have also started to break out above key areas of resistance. One such ETF is iShares Medical Devices (IHI - commentary - Cramer's Take). The setup is illustrated on the weekly and daily charts of IHI below:

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In the first chart, of the weekly time frame, notice how IHI just broke out above its long-term downtrend line (the descending black line). A breakout to a fresh all-time high should soon follow, as IHI is only about 1% below its high.

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At the time of publication, Wagner had no positions in stocks mentioned.

Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.