Stocks lost ground on Tuesday on higher trade but closed off session lows. The major indices all closed down on the session with smaller cap and technology stocks leading the decline. The small-cap Russell 2000 shed nearly 2.0% while the S&P MidCap 400 slid 1.4%. The Nasdaq fell just over 1.2%. The S&P 500 and the Dow Jones Industrial Average managed to keep losses contained as they ended the session lower by 1.0% and 0.7% respectively.
Market internals were moderately bearish. Volume increased by 6.9% on the Nasdaq and by 6.1% on the NYSE. Declining volume topped advancing volume by almost 5 to 1 on the NYSE and 2.6 to 1 on the Nasdaq. The convergence of market internals indicates that institutional investors were actively selling and we would therefore classify Tuesday as a distribution day in the broad market.
Yesterday, as the market recovered from session lows, the iShares MSCI Chile Investable Market ETF (ECH) gapped down and closed near the low of the day. This ETF has been showing relative weakness for quite some time and is once again poised for another selloff. A move below yesterday's low of $63.94 could be the catalyst for further selling in ECH.
Since shattering support of its two-year uptrend line and its 200-day MA, the Vanguard REIT ETF (VNQ) has rallied back into resistance of its 20-day EMA. An "overcut" of this key mark and/or the 200-day MA could provide the ideal short entry trigger for this ETF. We are monitoring VNQ carefully for a potential short entry.
The SPDR Series KBW Bank ETF (KBE) has been languishing in a trading range near its 52-week lows while the broad market has been moving higher. This relative weakness is an indication that institutions may be distributing this ETF into strength. A move below the two-day low of $19.00 may provide a shorting opportunity in this ETF.
The market appeared as if it might roll over yesterday but a late day surge prevented what could have been a very ugly day. With yesterday's action, many ETFs are close to forming legitimate setups that meet our trading criteria. We continue to be patient as the next set of trades develop.
Yesterday, via intraday alert we purchased BZQ. Trade details are available to our subscribing members in the open positions section of the newsletter.
Deron Wagneris the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, andMorpheusTrading.com, a trader education firm.
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