Stocks finished lower on Monday accompanied by a strong increase in trade on the Nasdaq. The market gapped up at the open, but 30 minutes into the session sellers entered the market and drove stocks lower for most of the day. With the exception of the Dow Jones industrial Average, all of the major indices finished in the red. However, the DJIA didn't turn in a glowing performance as it only managed to close flat on the day. The small-cap Russell 2000 fell by 1.1%, while the S&P MidCap 400 lost 0.7%. Both the Nasdaq and the S&P 500 shed 0.3% on the session.

Market internals were mixed on Monday. Volume was notably higher on the Nasdaq, while it fell slightly on the NYSE. The technology rich index saw a 28% increase in volume. Turnover on the NYSE dropped a modest 1% for the session. Declining volume outpaced advancing volume on the Big Board by a ratio of 2 to 1, while on the Nasdaq advancing volume was slightly higher than declining volume by a factor of 1.1 to 1. Despite the mixed internals, the price and volume action on the Nasdaq suggests institutions were actively selling tech stocks. We would classify Monday as a distribution day for the Nasdaq.

We made a judgment call to exit our position in ENY for a breakeven trade. ENY was under selling pressure much of the day and volume was increasing. We also opened a long position yesterday, as SSG hit its trigger. Our open position in QID has been performing well and this ETF is on the brink of recapturing its 50-day MA.

The Financial Select Sector SPDR ETF (XLF) has come under selling pressure since rallying just above its 50-day MA. A drop below support at $16.42 could result in further downside for this ETF. We are monitoring XLF for a possible short entry.



In our April 8 newsletter we stated; "The PowerShares Water Resources Portfolio ETF (PHO) has been demonstrating market leadership for several months and is now pulling back toward support of the 20-day EMA. An undercut of the 20-day EMA followed by several days to weeks of consolidation may provide the ideal setup for a long entry in PHO". Below are two charts of PHO - The first is from the April 8 newsletter and the second is from the close of business yesterday. Thus far PHO is performing how we anticipated. Nonetheless, we are far from calling this a long setup. Over the next several days we would like to see a big reversal candle (see blue candle) to shake out all of the weak hands (and stops). This type of price action followed by a period of consolidation is generally what is required to fuel the next potential advance.





The Nasdaq 100 Index ($NDX.X) continues to underperform the Nasdaq Composite Index ($COMPX). Yesterday, the $NDX.X closed below its 50-day MA while the Nasdaq Composite remained above this key mark. However, if selling continues to hit the larger cap Nasdaq stocks, we fully anticipate the $COMPX to follow the Nasdaq 100.

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.