Stocks closed down on Monday but well off session lows. Trade was light as all five major indices closed in the red. The small-cap Russell 2000 and S&P MidCap 400 suffered the worst yesterday as they shed 1.5% and 1.3% respectively. The Nasdaq dropped 0.9% while both the S&P 500 and the Dow Jones Industrial Average fell 0.8%.

In a followup to Friday's performance, market internals ended the session mixed. Volume was down on both major exchanges. By the closing bell volume on the Nasdaq had dropped nearly 3.0%. On the Big Board, turnover fell almost 20%. However declining volume overwhelmed advancing volume by a factor of 10.6 to 1 on the NYSE and 6.1 to 1 on the Nasdaq. The meager volume suggests that institutions did not participate in the selling and therefore we would not classify Monday as a distribution day.

Due to the opening gap down yesterday, we are removing EWY from the watchlist. We will continue to track EWY for another potential buy entry. Via an intraday alert we opened a long position in the ProShares Short S&P 500 ETF (SH) on Monday. On a burst of volume SH gapped up and rallied above its 20-day EMA and 50-day MA. Further, this move represented a breakout from a tight 5-day trading range. For our subscribers, trade details can be found in the open positions section of the newsletter.

The ProShares Ultra Real Estate ETF (URE) has tested and undercut support at the 50-day MA three times in as many days. Yesterday URE sold off setting a new three day low but recovered strongly and formed a reversal candle into the close. A volume assisted move above the two-day high of $61.44 may provide a buy entry in URE. We are placing URE on the watchlist. Trade setup details are available in the watchlist segment of the newsletter.



Since breaking to a new 52-week high two weeks ago the SPDR S&P Retail ETF (XRT) has pulled back into support of its 20-day EMA. Yesterday XRT undercut this key mark before reversing to reclaim the 20-day EMA. The undercut of a support level serves to shake out the "weak hands", sweep stop losses and attract short selling. We are monitoring XRT carefully for a potential long setup.



The broad market appeared headed for a disastrous day only to recover into the close. Yesterday gave many of the appearances of a reversal day as many stocks and ETFs formed reversal candles. Although the DJIA, S&P 500 and Nasdaq all managed to climb their way back into the 4-day trading range, the Russell 2000, NYSE, Dow Jones Transportation Average and S&P MidCap 400 all failed to follow suit. The broad market now needs to decisively reclaim support; otherwise the next move will likely be a retest of the June swing low.

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.