All of the major indices posted slight gains in Friday's session, as volume decreased. Stocks slid modestly at the open, gained footing around 10:30 am, and spent the remainder of the day in a sheepish rally. The markets have been consolidating in a tight trading range since last Thursday's opening gap. The gap has acted as support, while the highs set on Thursday have marked resistance. The small-cap Russell 2000 and the S&P MidCap 400 performed the best on Friday, as they rallied by 0.5% and 0.4% respectively. The S&P 500 rose by 0.3%. The Dow Jones Industrial Average and the Nasdaq both settled for a 0.2% advance on the session.

Turnover was down on both the NYSE and the Nasdaq at the closing bell on Friday. The drop in volume was fairly large, but not when compared against the volatility of last week's trading. For the day, the volume on both the Nasdaq and the NYSE slid 10%. The ratio of advancing to declining volume was slightly up on both indices. The ratio on the NYSE was a plus 1.3 to 1. The Nasdaq found up volume outpacing down volume by 1.1 to 1. Friday's trading brought no clear signal as to the next move in the market.

A brief analysis of the major indices is helpful following major market volatility. Below are charts for the DJIA, SPY and Nasdaq. Note the impact of the recent selloff. For the first time since the August rally began, all of these indices plummeted below the 20-day EMA. The result of this price action is the establishment of short-term support and resistance levels. A rally above resistance would signal the likelihood of the uptrend remaining intact and vice versa. As discussed in Friday's newsletter, price consolidation would be a healthy signal for a continued uptrend.










The Nuveen Build America Bond Fund (NBB) has recently seen distribution on heavy volume. NBB lost support of a 6-month trading range. This former support should present formidable resistance for any rally. This ETF also has the downtrending 20-day EMA to contend with. Finally, the fifty percent Fibonacci retracement level presents resistance just below the 20-day EMA. A rally into this "zone of resistance" should provide the opportunity to short NBB. We are placing NBB on the watchlist. For our subscribing members, the trade details can be found in the watchlist portion of the newsletter. For those trading in an IRA, 401K or other qualified account, buying the ProShares UltraShort 20+ Year Treasury ETF (TBT) would be a reasonable proxy for shorting NBB.




The SPDR S&P Metals and Mining ETF (XME) has rallied nicely after an undercut of the 20-day EMA. The rally back into the trading range has been accompanied by strong volume. As with most trades we are currently evaluating, we would like to see a period of consolidation before taking a long position.




Over the past several days of scanning trades, there are a higher percentage of short setups and neutral setups (possible trend reversal) than we have seen in a quite a while. Now that options expiration week is behind us, the next several days of trading action should help clarify where the market is likely headed.

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.