Stocks ended the session mixed with four of the five major indices closing lower. The small-cap Russell 2000 was the day's holdout as it posted a 0.2% gain. The Nadaq was the big loser on the session. The tech-rich index slid 0.9% yesterday. The S&P MidCap 400 and S&P 500 both dropped 0.4%, while the DJIA fell a modest 0.1%. For a second consecutive day oil services, coal, precious metals and transportation took a beating. Sectors showing relative strength included REITs, select financials, real estate and mortgage finance.

For the second time in as many sessions, market internals were mixed. Volume rose modestly on the NYSE but dropped 4.3% on the Nasdaq. However, declining volume topped advancing volume on both exchanges. By the closing bell, the ratio of declining to advancing volume stood at 2.1 to 1 on the NYSE and 2.9 to 1 on the Nasdaq. Because volume was light, the market avoided another distribution day.

Since January of this year, the S&P Select Utilities SPDR Fund (XLU) has been consolidating along its 20-day EMA in a tight range. Yesterday, for the second time in four sessions, XLU formed a distinct reversal candle, as it undercut its 20-day EMA but recovered to close near session highs. A move back above yesterday's high of $35.11 could provide a buy entry trigger for this ETF. We are placing XLU on the watchlist. Trade details are posted in the watchlist section of the newsletter.



Yesterday, on a spike in volume, the iShares Dow Jones Select Dividend Index (DVY) formed a reversal candle after undercutting its 20-day MA, and recovering to close near the day's high. A move back the two day high of $55.53 could present a buying opportunity in this ETF. We are monitoring the setup closely for a potential long entry.

 

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.