Equities posted strong gains on Monday but once again trade was soft. All five indices added more than 1.5% with the small-cap Russell 2000 leading the charge. By the closing bell the Russell had tacked on an impressive 3.0% while the S&P MidCap 400 gained 2.7%. The S&P 500 added 2.2% while both the Nasdaq and the Dow Jones Industrial Average improved by 1.9%.

Despite the market's strong price performance, market internals were weak for a second consecutive day. Volume fell sharply across both exchanges. On the Nasdaq turnover dropped by 13.2% and on the NYSE by 16.5%. However, advancing volume outpaced declining volume by a ratio of 26 to 1 on the NYSE and 8.4 to 1 on the Nasdaq. The absence of volume from the market creates concern as to the strength of this rally and strongly suggests that Institutions are shying away from this move. The lack of institutional participation implies the need for caution on the long side of the market.

During the recent market reversal the iShares S&P Latin America Index ETF (ILF) lost support of a key 10-month consolidation zone near $48.85. ILF has since rebounded and is now rallying into resistance of its 20-day EMA. An overcut of this key mark accompanied by a reversal candle could present a shorting opportunity in ILF. Also, notice that ILF faces formidable resistance as both the 50-day and 20-day moving averages have bearishly crossed below the 200-day MA.



Since recently losing support of its 200-day MA, the SPDR S&P Retail ETF (XRT) has been exhibiting relative weakness to the broad market. Notice that XRT has been unable to break out of its five-day trading range while both the S&P 500 and the Nasdaq have already done so. A move back into the 200-day MA could provide a short entry trigger for this ETF.



We were stopped out of our long position in BZQ yesterday as it gapped down and eventually lost the 20-minute low. We patiently waited for nice pullback to enter the trade but in volatile markets, timing is everything. We still like the trade but must now wait to see if a potential re-entry point presents itself.

The absence of volume during the recent bounce suggests that the market may be living on borrowed time. All of the major indices are rapidly approaching key resistance levels and unless institutional players begin participating in this rally, we expect to see a sharp reversal soon.

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.