Stocks closed higher but well off session highs as the market reversed late in the session on strong trade. All five major indices closed in the green with small-cap issues showing the most strength on Wednesday. By the closing bell the small-cap Russell 2000 tacked on 1.7%. The S&P 500, Dow Jones Industrial Average and Nasdaq improved by 1.0%, 0.9% and 0.8% respectively. The S&P MidCap 400 gained 0.6%.

For the second day in a row market internals and price action were positive but strangely enough, not bullish. Volume spiked by 18.5% on both exchanges but picked up significantly during the late day sell off and cast a bearish tone over the market. Advancing volume outpaced declining volume by 5.0 to 1 on the NYSE and 2.6 to 1 on the Nasdaq. Despite the positive price action we would not classify Wednesday as an accumulation day as institutions appeared to be aggressively selling into the close.

The ProShares UltraShort Real Estate ETF (SRS) formed a massive reversal candle yesterday on an uptick in volume. A move back above yesterday's high of $16.64 could provide a long entry trigger for this ETF. We are placing SRS on the watchlist. Trade details are provided for our clients in the watchlist segment of the newsletter.

Yesterday, the iShares MSCI Hong Kong Index Fund (EWH) formed a reversal candle as it found resistance at its downtrend line and 20-day EMA. A moved back below yesterday's low of $15.82 could present a shorting opportunity in this ETF. We will be monitoring EWH carefully for a possible short entry.

Yesterday's late session reversal was quite bearish and will likely result in further selling pressure for the next few days. However, now that the major indices have rallied through important resistance levels, we are more inclined to take profits/cut losses on the short side a bit more quickly.

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.