Stocks finished down on Thursday, and for the second straight day volume was mixed. All five major indices lost ground, but a late session rally kept the losses to a minimum. The Dow Jones Industrial Average and the S&P 500 both fell 0.2%, while the Nasdaq, S&P MidCap 400 and the small-cap Russell 2000 all shed 0.1% on the session.

Volume on the Nasdaq increased by 2.8%, while on the NYSE it fell by 3.3%. Declining volume overshadowed advancing volume on both the NYSE and the Nasdaq. The ratio of declining to advancing volume ended the day at 1.6 to 1 on the NYSE and 1.1 to 1 on the Nasdaq.

Yesterday we sent an intraday alert that we were taking a short position in EPU. We discussed EPU in yesterday's newsletter stating that it exhibited relative weakness during Wednesday's market rally. Further, we suggested two potential entry setups as follows; "A rally back into resistance at these key moving averages, or a drop below the January 10 low of $46.85, may present an opportunity to short EPU". EPU chose the latter option. For those of you unable to short EPU, an alternative trade is to buy the ProShares UltraShort MSCI Emerging Markets ETF (EEV). However, this ETF is not directly correlated to EPU. Both GDXJ and GDX performed admirably during yesterday's selloff. GDXJ and GDX fell 3.8% and 3.2% respectively.





The PowerShares DWA Emerging Markets Technical Leaders ETF (PIE) has been consolidating in a bullish pennant-like pattern for the past 11 weeks. A volume powered rally above $18.72 offers a potential long entry trigger in this ETF. We are Placing PIE on the watchlist. For are regular subscribers, trade details can be found in the watchlist segment of the newsletter.



Although stocks finished down yesterday, the losses were minimal and most of Wednesday's gains were preserved. The market continues to rally on light volume and we continue to see the erosion of former market leaders. Gold and emerging market ETFs have come under significant selling pressure lately. Money is rotating into formerly weak sectors. Further, it has become much easier to take short positions over the past month. All of these are signs that a market reversal may be close at hand.

In observance of Martin Luther King Day, there will not be a newsletter published on Monday, January 17. The next issue of The Wagner daily will be published on Tuesday, January 18.

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.