Thursday was a horrendous day on Wall Street as stocks took a beating on a surge in trade. All five major indices lost more than 3.5% with higher beta issues showing the most weakness. The small-cap RusseIl 2000 lost almost 6.0% while the S&P MidCap 400 and Nasdaq plummeted by 5.5% and 5.1% respectively. The S&P 500 dropped 4.5% and the Dow Jones Industrial Average fell 3.7%.

Thursdays plunge was aided by very weak market internals. As volume spiked by 43.0% on the Nasdaq and 63.5% on the NYSE, declining volume overwhelmed advancing volume across the board. The spread ratio ended the session at 33 to 1 on the NYSE and 41 to 1 on the Nasdaq in favor of declining volume. This combination of price action and volume clearly points to institutional distribution.

The iShares MSCI Malaysia Index ETF (EWM) has begun to lose some of its luster over the past several weeks. On August 7 and 8 this ETF undercut and lost support of its 200-day MA and its two-year uptrend line. Since bottoming on August 8 EWM rallied back into these key marks and yesterday, on a dramatic increase in volume, EWM once again lost support of its 200-day MA. A move back below yesterday's low of $14.21 may provide a shoring opportunity in this ETF. We are placing EWM on the watchlist. Details of this trade are available to our members in the watchlist segment of the newsletter.



After attempting to reclaim its 20-day EMA on August 16 and August 17, the Vanguard REIT ETF (VNQ) formed a breakaway gap on a spike in volume yesterday. A volume-fueled move back below yesterday's low of $53.65 could provide a short entry trigger for this ETF.



Following a five-day bounce, bears once again asserted their dominance over the market. Yesterday's price and volume action suggests that fear is alive and well in the broad market. Market internals continue to erode and we maintain our bearish bias. Until the market proves us wrong we will continue to focus our research on the short side of the market.

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.