Stocks rallied for a third straight day but for the second session in a row the move came on dwindling trade. Higher beta issues led the advance as the small-cap Russell 2000 and the S&P MidCap 400 both posted solid gains of 2.4%. The Nasdaq, S&P 500 and Dow Jones Industrial Average added 1.9%, 1.8% and 1.7% respectively.

For the second time in as many days the session ended with mixed market internals. Turnover slipped by 9.3% on the Nasdaq and 7.8% on the Big Board. Advancing volume topped declining volume across the board. By the closing bell the spread ratio was at 13.5 to 1 on the NYSE and 7.4 to 1 on the Nasdaq. For a second consecutive day positive price action was muted by a lack of volume. For two days now institutions have not participated in the advance.

Since setting its third "higher-high" in just over two months, the ProShares UltraShort MSCI Emerging Markets ETF (EEV) has once again pulled back into support of the 20-day EMA. The formation of a reversal candle would provide an ideal setup for a possible long entry in this inverse ETF. We like the price action in EEV and are monitoring it closely as a potential long candidate.



Since breaking out of its long-term downtrend in early August, the ProShares Short MSCI EAFE ETF (EFZ) has been one of the strongest inverse ETFs in the market. Yesterday EFZ pulled back into support of its uptrend line and 20-day EMA. An undercut of the trend-line could provide a buying opportunity in EFZ.



The market rallied on poor volume again yesterday. This suggests that a turn may be close at hand. However, given Tuesday's massive reversal day we are inclined to take profits quickly should we decide to enter any short positions.

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.