Yesterday's session was a tug-of-war between the bulls and bears, as stocks oscillated between negative and positive territory throughout the day. By the closing bell, the main stock market indexes were evenly split between black and red ink, but relative strength in the Nasdaq helped the bulls slightly gain the upper hand. Recovering more than half of the previous day's loss, the Nasdaq Composite gained 0.7%. However, both the S&P 500 and Dow Jones Industrials slipped 0.1%. The 0.6% advance in the small-cap Russell 2000 was similar to the Nasdaq's performance, but the S&P Midcap 400 lagged behind, finishing the day with a loss of less than 0.1%. All the major indices closed near the middle of their intraday ranges.

Total volume in the NYSE rose 12% above the previous day's level, while volume in the Nasdaq ticked 13% higher. Although the S&P 500's loss on higher volume technically caused the index to register a third straight "distribution day," a decline of just 0.1% is not enough to confirm the presence of institutional selling. Moreover, the Nasdaq Composite's solid gain on higher volume actually enabled the index to score a bullish "accumulation day." Volume in the tech-heavy index also moved back above its average level. Trading in the NYSE remained below its 50-day average, as it has done every day since May 13.

Falling more than 2% and breaking support of its 50-day MA, the Dow Jones REIT (Real Estate) Index ($DJR) was one of the weakest sectors yesterday. This enabled our position in the inversely correlated UltraShort Real Estate ProShares (SRS) to convincingly break out above its 20-day exponential moving average (EMA) for the first time in months. Because the S&P 500 had come into major support of its 200-day moving average yesterday, we locked in a nice profit on half of our SRS position, near yesterday's high, but continued to hold the remaining shares. If the S&P manages to lose support of its 200-day MA, triggering another leg down in the broad market, real estate could become a downside performer. That's why we're still holding half the position, albeit with a tighter stop. The short-term change of trend in SRS is shown on the daily chart below:



In yesterday's commentary, we discussed the chart pattern of iShares Nasdaq Biotech (IBB), which had pulled back to a major area of support. Specifically, we said, "the current price of IBB presents an ideal pullback entry point for those who may have missed our initial entry. . .notice that IBB appears to be finding support at its 20-day EMA, as well as major support of its prior highs from March and April of this year." As one of the top-performing (long) ETFs in yesterday's session, IBB scored a 2.5% gain. Because of its relative strength, there's a good chance IBB will soon break out above the high of its recent consolidation:



In the June 16 issue of The Wagner Daily, we said of the Financial SPDR (XLF), "Over the next few days, XLF now has very high odds of making a definitive, high-momentum break in one direction or the other. When it does, the direction of that move will likely be the same direction the broad market resolves itself, at least in the near-term. This is because the recovery in the financial sector, which began three months ago, has led the main stock market indexes higher." That day, XLF broke down below support of its 20-day EMA, pulling the major indices along with it. Then, even as stocks tried to find their footing yesterday, XLF continued lower, closing right at key support of its 50-day moving average:



Going into today's session, we'll be closely monitoring the performance of XLF, particularly with regard to whether or not it attempts to bounce off its 50-day MA. If XLF quickly rallies back into its previous range, the current pullback in the broad market may be rather short-lived. However, if XLF (a good ETF proxy of the financial sector) continues to show relative weakness over the next few days, the broad-based correction may become more signficant than some anticipate.

Due to the S&P 500 coming into support of its 200-day moving average, we made a judgment call to sell our full position of UltraShort S&P Midcap ProShares (MZZ) near yesterday's high, locking in a gain of more than 6% on a quick, two-day hold. As mentioned above, we also sold half of SRS into strength, netting a gain of 12.5% on those shares. New positions entered were iPath India Index (INP) and PowerShares Agriculture (DBA), both of which were "pullback" entries discussed in yesterday's commentary. We remain long the full position of IBB, and may add additional shares on a breakout above the range. U.S. Natural Gas Fund (UNG) is poised to break out above an area of horizontal price resistance, while iShares Silver (SLV) attempts to find support on its current pullback.

Open ETF positions:

Long - SRS, IBB, UNG, SLV, INP, DBA
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.