For the second consecutive day the market was met with heavy selling pressure and all five major indices closed in the red. However, a mid-session rally pared what could have been major losses across the board. Even with the bounce, the technology rich Nasdaq, the S&P MidCap 400 and the small-cap Russell 2000 shed 0.8%, 0.8% and 1.1% respectively. The S&P 500 lost 0.1% in yesterday's action. The Dow Jones Industrial Average demonstrated relative strength once again on Thursday. The Blue Chip index finished the day barely below the flatline.

Market internals reflected poorly on the overall health of the market. Volume was significantly higher on both the NYSE and the Nasdaq. Day over day, trade increased on the NYSE by 10.0% and on the Nasdaq by 9.3%. Declining volume was greater than advancing volume across the board, but the Nasdaq bore the brunt of the selling pressure. The tech heavy index saw declining volume outpace advancing volume by a ratio of 3.1 to 1, while the ratio on the NYSE ended the session at 1.1 to 1.

Several days ago we received an email from one of our clients asking for our evaluation of the ProShares UltraShort 20+ Year Treasury ETF (TBT). At the time TBT did not meet our setup criteria. However, based on yesterday's price and volume action we are now placing TBT on the watchlist. A move above Thursday's high of $38.87 may provide a buying opportunity for this ETF. For our subscribing members, details of the setup can be found in the watchlist segment of the newsletter.



The Retail HOLDRs ETF (RTH) has demonstrated excellent relative strength over the past two days. On over two times its average daily volume, RTH rallied near the January 3 high of $107.74 yesterday. A move above Thursday's high of $107.47 could provide an entry target for RTH. We will send an intraday alert should we decide to take a position in RTH.



Over the past two trading sessions market leaders have come under serious selling pressure. Although it's still too early to call a market top, waning leadership raises concern that a turn in the market may be close at hand.


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.