Stocks continued to struggle on Thursday as they lost significant ground for the fourth consecutive day. All five major indices ended the day in negative territory with the Dow Jones Industrial Average and the S&P 500 leading the plunge. Both Indices dropped 1.1% for the session. The Nasdaq slid 0.5% while both the S&P MidCap 400 and the small-cap Russell 2000 closed 0.4% lower.

Internals were bearish across the board on Thursday. Volume finished higher by 0.6% on the Nasdaq and 4.8% on the NYSE. Declining volume outpaced advancing volume fractionally on the Nasdaq and by a factor of 2.6 to 1 on the Big Board. Yesterday's internals indicate that major institutional players participated actively in the decline. However, for the second day in a row, the Nasdaq maintained relative strength to the broad market.

Given the four day slide in the market, it is a good time to step back and evaluate the health of the major indices. A quick comparison of all five indices clearly shows that small-cap stocks have taken the brunt of the recent selloff. The iShares Russell 2000 Index ETF (IWM) is the only of the five major indices to be testing its 50-day MA. The Dow Jones Industrial Average and the Nasdaq are demonstrating the most strength as both have managed to hold their 20-day exponential moving averages. Both the S&P 500 and the S&P MidCap 400 are trading between their 20-day and 50-day moving averages. The most important conclusion that can be drawn from the analysis of the five major indices is that the market is coming into a zone of critical support. If the market holds and consolidates near the current levels then the odds favor a move higher. However, if all of the major indices lose support of the 50-day MA and the trendline, then the possibility exists for a more protracted correction.

 
 
 
 
 
The iShares Russell Microcap Index (IWC) has closed below its 50-day MA for the past two sessions. Yesterday this ETF tested the April 14th swing low of $51.17 before recovering modestly. A volume fueled move back below this critical mark could provide a short entry trigger for IWC. However, since IWC has been under significant selling pressure for the past four days, we would prefer to see a small bounce and/or consolidation at the current price level as this would provide a better setup for a potential short entry.

 
The market continued its grind lower yesterday. Severe selling pressure in commodities, in large part due to an increase in margin requirements in the futures market, seems to have spilled over into equities.

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.