Stocks closed sharply lower on Tuesday on increased volume. After a gapping up to start the session, stocks sold off in an efficient stair-step like manner for the entire day. All five major indices gave back all or most of the two day rally, and closed near the session lows. on Monday on improved volume. All five major indices ended the day higher with the Dow Jones Industrial Average leading the rally. The small-cap Russell 2000 suffered the most damage as it slid 2.4% yesterday. The S&P MidCap 400 lost 1.7%, while the S&P 500 and the Nasdaq both fell 1.6%. The Dow Jones Industrial shed 168 points or 1.4%.

Tuesday's market internals were bearish thus suggesting institutional distribution. Volume was modestly higher across the board. Turnover increased on the NYSE by 6.3% and on the Nasdaq by 10.5%. In a reversal of Monday's action, declining volume overwhelmed advancing volume by a ratio of 8 to 1 on the NYSE and 5 to 1 on the Nasdaq.

In Tuesday's newsletter we presented two potential short setups for EWY. We stated, "the first scenario was discussed in Monday's newsletter, and the second scenario would be to short EWY below the February 24 low of $57.17". On a day of wild price action, EWY traded at both extremes of its six day trading range (see chart). We are placing EWY on the watchlist. A move below the February 24 low of $57.17 may provide a short entry trigger for EWY. For our subscribing members, trade details are posted in the watchlist segment of the newsletter.



The SPDR S&P Homebuilders ETF (XHB) closed near the session low on Tuesday. A break below the five day low of $17.27 could present a shorting opportunity in this ETF. We are adding XHB to the watchlist. Trade details are available in the watchlist section of the newsletter for our subscribers.



For EWY and XHB a modest gap up may also provide a potential short trigger. In the event that such price action provides a shorting opportunity, we will send an intraday alert to our membership.

With volatility comes uncertainty. Typically, when uncertainty surrounds the market institutional money moves to the sidelines. Our current market bias has shifted toward neutral, but all five major indices still remain above their respective 50-day moving averages. Further, the uptrend for each remains intact. Still, we are of the opinion that a trend reversal may be near.

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.