Yesterday's session was relatively uneventful, as the major indices failed to extend much beyond the opening fifteen minute bar's range in either direction. Small and mid-cap stocks showed relative strength early, but failed to produce anything positive in the afternoon. The Dow Jones Industrial Average and Nasdaq Composite closed slightly lower at 0.1%. The S&P 500 and S&P Midcap 400 indices each lost 0.2%. The Russell 2000, which has been a bit more active over the past few days slid 0.6%.

The tight-ranged action was accompanied by very light volume, as turnover finished around 30% below the 50-day moving average of volume on both exchanges. We could see a full week of uninspiring price action, as traders lay low ahead of the upcoming extended holiday weekend.

SPDRs S&P 500 (SPY) has formed a tight trading range on the hourly chart below:



We would expect any potential rally in the SPY to be short-lived, especially if the bearish volume pattern of the past few weeks persists. There is significant overhead resistance from the 200-day moving average and the downward sloping 50-day moving average around the 11.50 to 112.50 area (point B). That's assuming the price action is strong enough to break above the 20-day EMA around 110.00 (point A).



Retail stocks provided market leadership during the last rally. Now the SPDR S&P Retail (XRT) is sitting below its 200-day moving average and showing relative weakness to the S&P 500 over the past month. On the chart below we see the S&P 500 making (or attempting to make) a higher high and two higher lows, while XRT continues to make lower highs and lower lows. Even if the market is able to recover and produce a meaningful rally, it's doubtful that XRT will play a meaningful role.



Bond ETFs are showing significant strength as of late. Money flowing into bonds signals that investors are shying away from risk, which is a negative sign for stocks. Our TLT long position is working its way toward a bullish breakout above the highs of the range with yesterday's close:



Here is more strength from the iShares 7-10 Year Treasury (IEF):



Open ETF positions:

Long - TLT UNG UUP
Short (including inversely correlated "short ETFs") - USO

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.