Stocks closed lower on lighter trade yesterday. All five major indices closed in the red, led by a 0.8% drop in the small-cap Russell 2000. The Nasdaq slid 0.5%, while the S&P MidCap 400 faded 0.4%. The S&P 500 and the Dow Jones Industrial Average fell 0.3% and 0.2% respectively. The coal, real estate, banking and construction sectors took the brunt of the punishment on Wednesday. A few of the bright spots included, oil services, gold mining and consumer finance.

Market internals were negative yesterday, but light volume prevented a distribution day. Turnover slid by 6.3% on the Nasdaq and 8.1 % on the Big Board. Declining volume topped advancing volume across the board by a factor of 2 to 1.

In early February, the iShares MSCI Emerging Market Index ETF (EEM) rallied above resistance of its long term downtrend line and 200-day MA. Since breaking out, EEM has been consolidating in a tight range above the 200-day MA and now offers two potential long entry alternatives. EEM could offer a buying opportunity on a breakout above the three day high near $44.10 or on a pullback and undercut of its 20-day EMA. We are monitoring this ETF closely for a potential long setup.



Yesterday, the SPDR S&P Homebuilders ETF (XHB) saw a distribution day, as it sold off on increasing volume. XHB is now clinging to support just below its 20-day EMA. If XHB does not reverse off of this support level, it will likely find support at its uptrend line. A pullback into the uptrend line could provide a buying opportunity in XHB, but a better alternative would be for XHB to hold support and form a reversal candle at the 20-day EMA.



Our open position in IAU performed admirably yesterday but is getting close to a key resistance level near $17.60. We will likely be looking to at least lighten up on the position if it trades near this mark. The market continued to struggle yesterday but key support levels remain intact on all of the major indices. For the moment a pullback seems likely and may be what is needed before the market potentially makes another move higher.

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.