Wednesday brought whipsaw action to the market as stocks finished modestly higher. Both the Dow Jones Industrial Average and the S&P 500 tacked on 0.5% while the S&P MidCap 400 improved by 0.3%. The Nasdaq eked out a 0.1% gain as the small-cap Russell 2000 was the sole loser on the day as it closed lower by 0.1%.

For the second day in a row market internals were superficially bullish. Volume was up on the Nasdaq by 7.2% and on the NYSE by nearly 14.0%. Advancing volume outpaced declining volume by a ratio of 2.6 to 1 on the NYSE and 1.2 to 1 on the Nasdaq. Although yesterday was technically an accumulation day, price action was unimpressive across the board and it appeared that institutions may have been selling into strength. Further, advancing volume barely outpaced declining volume for the second consecutive day on the Nasdaq.

Yesterday, via an intraday alert we entered a long position in the ProShares Short Russell 2000 ETF (RWM). We liked this trade because RWM pulled back into support of, and undercut its 61.8% Fibonacci retracement level which also coincides with its rising 50-day MA. We took on small size and set a wide stop in order to accommodate for a somewhat early entry. Trade details are available to our subscribers in the open positions section of the newsletter.



Yesterday, the SPDR S&P Retail ETF (XRT) rallied and "overcut" its 200-day MA before selling off sharply to close in the bottom 30% of its intraday range. A move back below yesterday's low of $49.18 could provide a shorting opportunity in this ETF. We are monitoring XRT closely for a possible short entry.



The fact that so many reversal candles formed yesterday casts doubt on the remaining strength in the current rally. The market appears to be running out of steam but we would not be surprised to see another run at Wednesday's highs prior to the market taking another 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.