For the second consecutive day stocks closed lower, but managed to pare losses late in the session. Technology stocks got hit the hardest, as the small-cap Russell 2000, the Nasdaq and the S&P MidCap 400 dropped 1.6%, 1.4% and 1.3% respectively. The S&P 500 slid 0.8%, while the blue chip Dow Jones Industrial Average fell 0.7% on the session.

In a follow-up to Friday's action, market internals ended the day mixed on Monday. Volume spiked by 15.4% on the Nasdaq, clearly suggesting institutional distribution. However, turnover on the NYSE was muted, as it fell just under 2% yesterday. The ratio of declining volume to advancing volume increased across the board yesterday. The ratio ended the day at 4.2 to 1 on the NYSE and 4.8 to 1 on the Nasdaq. Yesterday marked the fifth time in nine sessions that the Nasdaq has fell under distribution.

KBE hit its trigger yesterday and we entered a short position in this ETF. Overall the banking sector appears to be weakening, but our biggest concern is the recent lack of follow through in the market. Position details for KBE are posted in the watchlist segment of the newsletter.

Emerging market ETFs struggled yesterday and appear headed for another decline. The iShares MSCI Hong Kong Index ETF (EWH) could provide a short entry trigger below yesterday's low of $18.49. We are closely monitoring this ETF for a potential entry point.

 
Last week we shorted the Retail HOLDRS ETF (RTH), but were stopped out of the position. Since then this ETF has continued to exhibit signs of weakness. A drop below yesterday's low of $104.45 may provide a shorting opportunity for this ETF.

 
The major indices continue to probe their respective 50-day moving averages. The current chippiness in the market has made for difficult trading environment. As soon as momentum appears to be shifting (up or down) the market has reversed. The market has clearly lacked follow through in recent weeks.

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.