After opening modestly lower, stocks chopped around in a range throughout most of the day, then encountered a high-volume wave of selling in the afternoon. The die-hard bulls attempted to spark a rally in the final thirty minutes of trading, but the broad market still closed in firmly negative territory. The Nasdaq Composite lost 0.2%, the S&P 500 0.6%, and the Dow Jones Industrial Average 0.7%. The small-cap Russell 2000 and S&P Midcap 400 indices declined 0.3% and 0.7% respectively. The main stock market indexes finished just below the middle of their intraday ranges.

Turnover in both exchanges raced higher, as institutions pressed the sell button yesterday. Total volume in the NYSE swelled 23%, while volume in the Nasdaq was 30% greater than the previous day's level. Trading finally moved back above 50-day average levels, but it's bearish that the volume spike was accompanied by broad-based losses. The losses on higher volume caused both the S&P 500 and Nasdaq to register a bearish "distribution day." The late-day recovery into the close halved the percentage losses of the major indices, but the sharply higher turnover tells us the day was more bearish than it may have appeared on the surface.

In case the market blows off yesterday's weakness, rather than following through on it (which would not be overly shocking), traders may wish to monitor ProShares Ultra Semiconductor Index (USD) for a potential breakout above the high of its recent range. The daily chart of USD is shown below:



Circled in pink on the chart above, notice USD briefly moved above its horizontal price resistance on an intraday basis in yesterday's session, but was unable to hold above it. Still, short-term momentum traders may consider buying above that level (above the $36.40 area) in today's session. However, a tight intraday stop should be utilized, just to protect against a repeat occurrence of yesterday afternoon's sell-off. Even though USD is a leveraged ETF ("ultra"), it's actually showing the most relative strength of the several different semiconductor ETFs we analyzed. The more popular Semiconductor HOLDR (SMH), for example, is still trading below resistance of its January 2010 high. Conversely, USD has already cleared that level.

In the April 6 issue of The Wagner Daily, we illustrated how the iShares 20+ Year T-Bond (TLT) had sliced through pivotal support to close at a new, multi-year low. Due to a well-received Treasury auction, TLT then climbed 1.3% yesterday (a sizeable one-day gain for a bond ETF). However, although this might have made holders of UltraShort ProShares 20+ Year T-bond (TBT) a little nervous, TLT has merely rallied into major resistance that was formerly support. Remember the most basic tenet of technical analysis -- a prior level of support becomes the new resistance after the support is broken (and vice versa). New resistance of the prior support level is shown on the daily chart of TLT below:



In addition the horizontal price resistance (the dashed horizontal line), the descending 20-day exponential moving average (the beige line) will provide further resistance. As long as TLT doesn't probe more than about one point above resistance, the chart remains bearish. As such, we still remain long TBT with the original stop. Any necessary changes to the stop will be reported to regular newsletter subscribers via Intraday Trade Alert.

We concluded yesterday's commentary by suggesting it may be a good time to tighten protective stops, in order to lock in gains and/or minimize risk in the event of a sudden market reversal. Specifically, we said, "Granted, the market has not yet exhibited any significant signs of weakness or an impending pullback, but we would humbly like to remind subscribers that markets do indeed still go both up and down. Sometimes, as is presently the case, markets can persist in a trend for a surprising length of time, but the retracement will eventually come, often when the least number of market participants expect it. Realize that we are certainly NOT trying to call a top; rather, we are merely reminding you not to become complacent with winning positions." Given the clear presence of institutional distribution in yesterday's session that followed this commentary, that same friendly suggestion probably bears repeating today.

Open ETF positions:

Long - FXI, IAI, UUP
Short (including inversely correlated "short ETFs") - TBT, BRF

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.