Equities ended mixed on Friday on mixed trade. The five major indices we track all recovered from session lows, and by the closing bell were near session highs. The Dow was the day's big winner as it tacked on a solid 0.8% gain. None of the other indices fared so well, however. The small-cap Russell 2000 finished 0.3% higher while the S&P 500 eked out a 0.1% gain. The S&P MidCap 400 ended the session flat and the Nasdaq slid into the red by 0.1%. Sectors showing the most relative strength included semiconductors, banks, insurance, precious metals and real estate. The worst performers were retail, pharmaceutical, internet and oil sectors.

Market internals ended the day mixed. Volume climbed on the Nasdaq by 13.5% but fell on the Big Board by 1.4%. However, advancing volume topped declining volume across the board on Friday. By the close, the advancing volume to declining volume ratio stood at 1.2 to 1 on the NYSE and 1.5 to 1 on the Nasdaq. Volume was surprisingly light for an options expiration day and very little useful information can be gleaned from the price and volume data.

On a big burst of volume on January 18, the SPDR S&P Retail ETF (XRT) broke out from a six-week consolidation range. It followed through to the upside on the January 19 and formed an inside candle last Friday. We are stalking this ETF for a possible long entry. Ideally, we would like to see XRT form a pennant formation with a sequence of higher lows (scenario #1), or have it pull back and test its 20-day EMA before moving higher (scenario #2). We are monitoring this ETF carefully for a potential long entry.



Last Wednesday, the S&P Select Energy SPDR Fund (XLE) reclaimed support of its 200-day MA on an uptick in volume. On Friday, XLE tested support of the 200-day MA, but reversed on a spike in volume, to close near session highs. For XLE to make our cut as a long candidate, we would first like to see it consolidate for a few days and/or undercut support of the 200-day MA, prior to attempting a move higher.



All of our open positions either went higher on Friday or consolidated. We are prepared to sit through a pullback in all of these positions but we will be raising our stops after the open tomorrow. We will determine the new stops based on the price action in the morning session. Although the major indices closed well off session lows yesterday, the broad market appears to be losing some of its steam. As we discussed on Friday, many of our momentum indicators are pointing toward a short-term correction.

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.