Stocks closed lower on Monday on light trade. Despite posting early gains, all five major indices ended in the red, with higher beta issues leading the decline. The small-cap Russell 2000 dropped 1.9% while the S&P MidCap 400 lost 1.7%. The Dow Jones Industrial Average, S&P 500 and Nasdaq all lost support of their respective three day lows, as they closed near session lows. By the closing bell these three indices posted losses of 0.8%, 1.2% and 1.3% respectively.

Market internals were mixed on Monday. As might be expected following a quadruple witching options expiration day, market volume was considerably lighter. Turnover dropped by a whopping 38.0% on the Nasdaq and 39.0% on the NYSE. Declining volume was higher than advancing volume on both exchanges. By the closing bell the ratio of down to up volume stood at 10.3 to 1 on the NYSE and 3.8 to 1 on the Nasdaq.

Since its big breakout move on December 12, the ProShares UltraShort Euro ETF (EUO) has been consolidating for the past four days at the highs of the move. EUO has also formed a pennant like formation as it has held support at the 20-period EMA on the 60-minute chart. A move back above the three-day high of $20.21 could provide a buy entry trigger in this ETF. Above this key mark a partial trade position could be entered and the remainder of the position above the four-day high of $21.32. Alternatively, EUO offers a possible entry on a pullback into its 20-day EMA.

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Yesterday, on a massive spike in volume, the iShares FTSE NAREIT Mortgage REITs ETF (REM) formed a reversal candle as it failed to break above resistance of its nine-day high. Also, notice the bearish divergence between the price action in REM and the Accumulation-Distribution Histogram. A move below the eight-day low of $12.83 could offer a short entry trigger for this ETF.



The market continues to struggle to find a bid. However, as we stated in Friday's newsletter, we have still not witnessed wholesale carnage during this selloff. Some sectors are still holding up. On the other hand, many more stocks that have been basing near their 52-week highs have begun to roll over. For the moment, it appears that we are headed lower but we still remain cautious.

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.