After opening near the flat line, the major indices drifted steadily lower throughout the entire day, causing the main stock market indexes to finish substantially lower. Like the previous day, the Dow Jones Industrial Average showed a bit of relative strength; the blue-chip index lost just 0.4%. The S&P 500 slipped 0.7% and the Nasdaq Composite fell 1.0%. The Russell 2000 and S&P Midcap 400 indices shed 1.7% and 1.4% respectively. Small and mid-cap stocks frequently exhibit greater volatility in both directions, just as the Russell and S&P Midcap indices led the market higher in the previous week. The S&P and Nasdaq settled near the bottom quarter of their intraday ranges, while the Dow finished just below the middle of the day's range.

One positive aspect of yesterday's session is that turnover was lighter across the board, on the first day stocks significantly pulled back from their recent highs. Total volume in both the NYSE and Nasdaq was 10% lighter than the previous day's respective levels. Higher trade would have pointed to institutional selling, but the slower pace tells us institutions were primarily on the sidelines yesterday. Nevertheless, remember the S&P and Dow registered a session of bearish "churning" in Tuesday's session. Despite yesterday's losses, market internals were not too bad. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a relatively modest 5 to 2 ratio.

Despite yesterday's broad-based pullback, three of our four open ETF positions (TLT, UNG, and DBA) moved in the right direction. Our short position in GDX bounced 0.6%, but it wasn't a big deal considering it tumbled nearly 4% the previous day. As anticipated, iShares 20+ year T-bond (TLT) bounced off the first touch of its 50-day MA support level, which we discussed in yesterday's commentary. Gapping firmly above the high of its multi-week base of consolidation on the open, U.S. Natural Gas Fund (UNG) got off to great start yesterday. However, the ETF subsequently surrendered a majority of its early intraday gain later in the session. Still, UNG closed above its 50-day MA and the high of its recent range, so bullish momentum could continue taking it higher in the near-term. Finally, PowerShares Agriculture Fund (DBA) turned in the best performance yesterday. Its daily chart is shown below:



Going into yesterday's session, DBA was trading in a tight, sideways range, near its 200-day moving average. Since the 200-day MA coincided with resistance of last week's high (around $25.15 to $25.20), a breakout above that high was likely to quickly launch DBA back to the top of its recent range, which is exactly what happened yesterday. Today, we'll be looking for a breakout above the July 15 high of $25.37, just a few cents above yesterday's closing price. If DBA convincingly closes above that level, the ETF will be positioned for another leg higher in the near-term. We remain long since our original June 30 entry, when DBA "undercut" support of its 50-day MA and quickly snapped back into the range. So far, the trade is showing an unrealized gain of just over $1,000, based on our $50,000 model ETF portfolio.

Over the past week, we've been monitoring a handful of ETFs for potential buy entry on a pullback. Due to the retracement in the broad market yesterday, many of these ETFs have now begun approaching the pullback entry points we were targeting. Generally, we are looking for pullbacks to short-term support of the 20-day moving averages, and/or pullbacks to new support of the previous breakout levels. Just one more day of selling could cause some of these ETFs to approach our targeted buy area, so we'll be monitoring closely. On our watchlist, we are presently stalking the following tickers with relative strength to the broad market: EWS, BRF, THD, IDX, TAN, ECH, and INP. All of these ETFs except INP are potential pullback buy entries. INP is being monitored for a breakout entry. We may or may not see pullbacks to the prices we're looking for, but let us remind you once again that present market conditions are not conducive to chasing stocks and ETFs that are extended beyond proper entry prices. Patient, disciplined traders will be rewarded.

For weeks, we've been saying the main stock market indexes are likely to remain stuck in a wide, sideways trading range for the summer. So far, that analysis appears to be on track. Recent price action has favored the bulls, but has generally lacked impressive upside momentum. Overall, the current environment feels as though most traders are apathetic right now -- perhaps it's just the Summertime Blues (great song by Eddie Cochran). In a range-bound market with apathetic participants, it's important to take profits quicker, perhaps adjusting your trades to have a shorter holding time by selling into strength of initial moves, rather than holding through pullbacks. Looking for trades in markets with a low correlation to the stock market (currencies, bonds, and commodities) is another way to avoid churning your trading account in an indecisive, non-committal market surrounded on both sides by short-term levels of support and resistance..

Open ETF positions:

Long - DBA, UNG, TLT
Short (including inversely correlated "short ETFs") - GDX

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.