Last week, EWH "undercut" its recent lows throughout the week, but rallied to finish the week positive, forming a bullish "hammer" candlestick in the process. So far this week, it never violated any of last week's range, and is poised to score another week of gains. The S&P 500 is also on track for another week of gains, but it retraced a bit of last week's gains on Monday and Tuesday.

Over the past three days, EWH has rallied 3.9%. Comparatively, the S&P 500 has gained just 1.7%. With the relative strength EWH is now exhibiting, we expect it to continue outperforming the domestic markets on the upside, and retracing less during the pullbacks along the way. At a minimum, EWH should test resistance of the downtrend line that began with its November 2007 high (the dashed blue line). Since EWH is a low-priced ETF, note that it correspondingly has a low ATR (average true range). This basically means the average distance from its intraday low to intraday high is pretty small. Nevertheless, that problem is easily remedied by increasing your share size on the position. Buying 1000 shares of an ETF that has an ATR of 40 cents (such as EWH) is essentially similar risk as buying 200 shares of an ETF with an ATR of 2 points. If not already long EWH, a pullback to its 20-day EMA (presently at 16.87) would present a low-risk buying opportunity.

Upon doing an updated assessment of industry sectors in the domestic markets, the various biotech ETFs are still showing the most relative strength and bullish chart patterns. Many other industry sectors, such as Financial, Retail, and Software, are now in "no man's land," trapped between key support and resistance levels. Within the biotech arena, both the S&P Biotech SPDR (XBI) and Biotech HOLDR (BBH), which we just sold into strength for a 19-point gain, are trading at fresh 52-week highs. The former is actually at an all-time high. iShares Nasdaq Biotech (IBB), on the other hand, is lagging behind the group and has yet to break out to a 52-week high. This is because IBB excludes biotech stocks listed in the NYSE. If you're already long the biotech ETFs, just keep trailing a loose stop. But if you're not already long XBI or BBH, consider waiting for a pullback to their 10-day moving averages, or at least two-week base of sideways consolidation, before buying either of them.

Clearly showing the most downside leadership are the various commodity-based ETFs such as oil, gas, coal, gold, silver, and agriculture. Until recently, the commodities seemed unstoppable in their bullish momentum, but sentiment has rapidly changed. We bought StreetTRACKS Gold Trust (GLD) on July 10, as GLD broke out above a pivotal level of resistance that had been in place for four months. Initially, subsequent price action after the breakout was fine.