Stocks rebounded on Monday, but on light trade. All five major indices closed the day in positive territory. The small-cap Russell 2000 led the rally, as it closed the session higher by 0.9%. The S&P 500 and the S&P MidCap 400 both rallied by 0.8% yesterday. The Dow Jones Industrial Average added 0.6%, while the Nasdaq posted a 0.5% improvement.

Market internals ended the day mixed. Volume declined significantly across the board. Turnover fell 18% on the Nasdaq and 16% on the NYSE day over day. However, advancing volume outpaced declining volume on both indices. The ratio of up to down volume ended the day at 2.2 to 1 on the NYSE and 1.4 to 1 on the Nasdaq.

Yesterday, we covered our short position in FRN to lock in a healthy profit. FRN was approaching support at the 200-day MA. Since FRN was close to its target, we felt it made sense to cover the position into weakness. In Monday's newsletter we discussed the weakness exhibited by ECH. Yesterday, ECH performed poorly against the market. It closed near the low of the day. A drop below $71.10 should result in additional selling pressure for this ETF. We are placing ECH on the watchlist. For our subscribing members, trade details are posted in the watchlist segment of the newsletter.



The iShares Dow Jones Transportation Average ETF (IYT) has been under significant selling pressure for the past ten days. A move below the January 28 low of $90.06 may provide a short entry trigger for this ETF. We are carefully monitoring IYT as possible short candidate.



Monday's market action was typical following a sharp round of selling. Market internals suggest that yesterday's move lacked institutional support. Over the past several sessions it has become increasingly difficult to identify quality long setups. For the moment, it appears as if the market is positioned for further selling.

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.