Gapping substantially higher on yesterday's open, the stock market initially looked as though it was going to break out above its recent range. However, the bears quickly took control, reversing the opening momentum and sparking a sharp sell-off. Stocks trended steadily lower throughout most of the day, but rallied off their lows to reclaim a majority of their losses in the final ninety minutes of trading. The Nasdaq Composite, down 1.8% at its intraday low, lost only 0.4%. Both the S&P 500 and Dow Jones Industrial Average recovered from similar losses to close just 0.3% lower. The small-cap Russell 2000 and S&P Midcap 400 indices fell 0.8% and 0.5% respectively. Each of the major indices settled in the middle of its intraday range.

Turnover swelled across the board, causing both the S&P 500 and Nasdaq Composite to register a bearish "distribution day." Breaking its seven-day streak of declining volume, the NYSE saw a 15% jump in volume. Trading in the Nasdaq rose 10% above the previous day's level. Although the late afternoon recovery was encouraging, the losses on higher volume still pointed to institutional selling in both exchanges.

One sector that help up well to yesterday's selling is Oil. Within the oil industry, several ETFs are poised for potential breakout, which would likely occur on any further strength in the broad market. One such ETF we're monitoring for possible breakout is ProShares Ultra Oil and Gas (DIG):



Two weeks ago, DIG broke out above an area of horizontal price resistance, then entered into another pattern of consolidation. This created what is known as a "base on base" formation the daily chart. When this occurs, the upward move that follows can be strong, due to accumulated momentum from a breakout of two bases of consolidation. With this setup, one needs to be aware of the 200-day MA (presently at $33.81). However, momentum from its "base on base" breakout may enable DIG to slice right through that level of resistance. Other ETFs in the sector we like include: iShares Oil and Gas (IEO), Oil Service HOLDR (OIH), and Energy Bull 3X (ERX).

PowerShares Agriculture Fund (DBA) has pulled back to support of its 20-day exponential moving average (EMA), and now has big support of its 50 and 200-day moving averages below. We like DBA for a continuation rally, with an entry above its two-day high of $27.96. The daily chart of DBA is shown below:



Market Vectors Agribusiness (MOO), whose portfolio consists of agriculture-related companies, has been consolidating in a tight range, above support of its 20-day EMA. A breakout should lead to continuation of the established uptrend that began in ealy May. MOO can be bought above yesterday's high of $38.29, as that would lead to a resumption of the current uptrend:



The major indices remain stuck in the middle of their recent trading ranges. However, like we said yesterday, "the good news is that this indecision won't last forever. In fact, it probably won't be more than a few more days until stocks make a convincing, decisive move out of the range." Stay nimble and ready to switch to market direction if your positions are on the wrong side of the eventual breakout.

Open ETF positions:

Long - SLV, IBB, SRS
Short - (none, but SRS is an inversely correlated ETF)

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.