Stocks fell across the board on brisk trade. All five major indices closed down on the session. The small-cap Russell 2000 led the plunge as it fell 1.5%. In a similar exhibition of weakness both the Nasdaq and the S&P MidCap 400 both shed just over 1.2%. The S&P 500 lost 0.7% while the Dow Jones Industrial Average slid just 0.4%.

For the second time in three days, market internals were bearish. Volume jumped across the board. On the Nasdaq turnover rose by 2.4% while on the NYSE it grew by 6.5%. Declining volume held the upper hand over advancing volume for the entire session. By the closing bell the spread ratio was at 4.5 to 1 on the NYSE and 3.3 to 1 on the Nasdaq in favor of declining volume. Given the uptick in volume and higher declining volume we would classify yesterday as a distribution day in the market. The higher volume clearly speaks to institutional participation in the decline.

Over the past four sessions as the broad market has been declining, the iShares MSCI Indonesia Investable Market ETF (EIDO) has continued to consolidate in a tight range. If EIDO maintains this relative strength, then when the market turns we would expect this ETF to be one of the first to rally. Ideally we would like to see EIDO undercut its 20-day moving average before a resuming a possible move higher as this serves to shake out the weak hands and simultaneously attracts short sellers. We like the prospects for EIDO and are monitoring this ETF closely for a possible entry.



The iShares MSCI All Peru Capped Index (EPU) has been in a significant decline since late 2010. Although this ETF has shown relative strength over the past several days, yesterday it formed a distinct reversal bar and may now be primed for a move lower. A drop below yesterday's low of $38.90 could present a short entry in this ETF.



Following last week's impressive rally, the market has put two distribution days together this week. Yesterday's selloff places us at three distribution days in the past 12 sessions which raises concern. Caution is warranted in the face of such data.

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.