Stocks dropped for a third consecutive session yesterday, on mixed trade. All five major indices closed near session lows. High beta stocks once again led the decline. Leading the decline were the S&P MidCap 400 and the Nasdaq, as both slid 1.6%. The small-cap Russell 2000 fell 1.4%, while both the S&P 500 and the Dow Jones Industrial Average shed 1.1%.

Market internals ended the day mixed, but barely. Turnover rose on the Nasdaq by a modest 1.7% but dropped fractionally on the NYSE. Still, declining volume once again dominated the landscape. At the closing bell, the ratio of declining to advancing volume stood at 3.7 to 1 on the NYSE and 6.3 to 1 on the Nasdaq. The uptick in volume on the Nasdaq suggests that institutions were once again in sell mode. Wednesday marked the third time in five days that the Nasdaq has seen distribution. Given that the NYSE closed virtually at the lows of the session and volume was just fractionally lower, we would also classify Wednesday as a distribution day for this index.

Since undercutting its 20-day EMA on December 8, the iShares JP Morgan US Dollar Emerging Market ETF (EMB) has been consolidating along this key mark for the past four sessions. A move above the two day high of $109.25 may present a buying opportunity in this ETF.



Over the past two sessions, the SPDR S&P Bank ETF (KBE) has attempted to reclaim its 20-day and 50-day moving averages. However, on both occasions, KBE has reversed to close near session lows below these key marks. A move below the two day low of $18.65 could present a shorting opportunity in this ETF.



Yesterday, GLL gapped up, rallied strongly and hit our target. We exited the trade with over a 1.0% gain in the model portfolio. We are still in AGA, which also gapped up yesterday. Further, AGA broke above the nine month resistance level of $20.39.

Although the market suffered a third straight losing session yesterday, the move is not what we would consider outright carnage. Some sectors are still holding up (Retail, Pharma, Real Estate), and we have not seen many stocks closing down four percent or more. Nonetheless some former leadership stocks have been taking a beating lately. Nasdaq leaders such as PCLN, LULU, WYNN and AMZN have suffered as of late. Our market bias is now modestly bearish, as we have seen six distribution days in the past twenty.

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.