The major indices continued their suffering yesterday, as stocks sustained another brutal round of losses. After gapping higher on the open, sellers immediately took control, setting the broad market into a steady downtrend that persisted into the close. The Dow Jones Industrial Average plunged 3.4%, the S&P 500 3.5%, and the Nasdaq Composite 3.7%. The small-cap Russell 2000 and S&P Midcap 400 indices registered identical losses of 4.0%. All the main stock market indexes closed at their dead lows of the day.

Turnover backed off from last Friday's levels that were inflated by monthly options expiration. Total volume in the NYSE receded 23%, while volume in the Nasdaq eased 20%. Although volume was lower than the previous day's level, it was the ninth straight day that trading has exceeded 50-day average levels. Since stocks have essentially moved steadily lower during that time, it's evident institutions are still leaning on their sell buttons.

The S&P 500 joined the Dow Jones Industrial Average in tumbling to a new multi-year closing low yesterday, though the intraday low of November 21, 2008 is still two points below yesterday's closing price. The Nasdaq Composite is still above its November 2008 low, though that could change with just one more day of heavy selling. Although the S&P 500 has posted losses for six straight sessions, yesterday's lighter volume tells us the selling may not be done. In order for stocks to reach "capitulation," the point at which the market finally puts in a significant bottom and reverses, we normally need to see one massive day of losses on significantly higher volume. Such a sign tells us we've reached the point at where the last of the die-hard bulls finally "throws in the towel," but we've not reached that level yet. This, of course, does not mean stocks won't bounce in the near-term; rather, it means we've not yet seen one of the most reliable technical indicators that a bottom has formed.

Admittedly, we could have been more aggressive on the short side over the past week. Even though our long positions had relative strength to the broad market, and still lost less than the major indices, the severity of the recent selling caused even the strongest ETFs and stocks to begrudgingly hit their stops. Nevertheless, in the big picture, we're still looking at a net gain in our model account for the first two months of the year. Considering the S&P 500 is down more than 15% so far in 2009, any traders and investors who simply have not lost money this year are doing better than most. The same could be said of last year, when the S&P 500 lost 38%, but the model account of The Wagner Daily netted a decent overall gain for the year. Inevitably, we're eventually going to miss a short-term move in the market, as our methodology is discretionary in nature. Still, as long as we generate consistent profits year after year, we don't stress too much about it. The only thing to do is learn from every experience, and improve for the next time the scenario occurs. Overall, the big winning trades, such as our recent gold ETFs, along with a mostly cash position when necessary, enables us to weather just about any storm.

As for our near-term plan, we don't like the reward/risk ratio of entering new short positions after six straight days of losses in the broad market. At this point, the best plan of action is to wait for the major indices to bounce into resistance of their 20 and 50-day moving averages, then look for new short opportunities. This would only be invalidated by some clear signs that a bottom may be forming; something we have not yet seen. We're now flat, in capital preservation mode, waiting to take advantage of the next opportunity.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.