Stock closed near session lows on Friday as trade waned. All five major indices lost significant ground as bears continued to exert control over the market. The higher beta S&P MidCap 400, small-cap Russell 2000 and Nasdaq dropped 1.8%, 1.7% and 1.6% respectively. The Dow Jones Industrial Average slid 1.6% while the S&P 500 fell 1.5%.

Market internals were mixed on Friday. Volume fell on both exchanges. The Nasdaq saw a decline in turnover of more than 14.0% while trade on the NYSE dropped by a more modest 5.7%. Nonetheless, declining volume outpaced advancing volume on the Nasdaq by a factor of 2.8 to 1 while on the NYSE the ratio ended the session at 5.6 to 1. Due to Friday's lighter volume we would not classify the session as a distribution although the price action does not bode well for the market.

The SPDR S&P Select Consumer Staples ETF (XLP) found resistance at its 200-day MA and 20-day EMA on Thursday as it gapped down on a spike in volume. Yesterday, after a morning gap down, XLP rallied back into its 20-day EMA, reversed and ultimately closed near the session lows. A move below the two day low of $29.33 may provide a short entry trigger for this ETF. We are monitoring this ETF closely for a potential short entry point.



Since finding a bottom on August 9, the SPDR S&P Select Utilities ETF (XLU) has rallied into resistance of, and is now consolidating at its 200-day MA. A volume fueled move back below the two day low of $32.09 could result in a retest of the swing low established on August 9.



Via an intraday alert we covered our short position in IYR for a healthy 3-point gain. EWM remains on our watchlist as it did not trigger on Friday. The market remains under pressure and the major indices are now testing their 10-day lows. In a range-bound or uptrending market this swing low would generally be expected to serve as a reliable support level. However, with the extreme volatility in the market and the recent erosion of market internals, we would not be surprised if the market ignored this support level and took another dramatic leg down.

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.