Stocks got slammed on Tuesday on brisk trade. All five major indices closed in the red by more than one percent. The small-cap Russell 2000 and S&P MidCap 400 plunged 2.1% and 1.9% respectively. The Dow Jones Industrial Average slid 1.6% while the S&P 500 lost 1.5%. The Nasdaq fared the best, but not by much. The tech-rich index ended the session down by 1.4%. All of the 104 sectors that we follow ended the day lower, with heavy construction, automotive, financials and oil services leading the plunge. Semiconductors and retailers showed the most strength as they contained losses to less than .5%.

Market internals were decidedly bearish. Volume spiked by 11.3% on the Nasdaq and 22.6% on the NYSE. Declining volume overwhelmed advancing volume by a whopping 25 to 1 on the NYSE and 5.7 to 1 on the Nasdaq. Yesterday was a definitive distribution day across the board. Institutions were selling from the opening to the closing bell.

UltraShort Real Estate (SRS) has been drifting sideways in a tight range at the 20-day EMA the past few weeks after breaking the daily downtrend line. The price action on March 5 served as a minor shakeout, which was followed by a higher volume reversal day on March 6. We are placing (SRS) on the watchlist. Trade details are posted in the Watchlist section of today's report.



Since topping out on March 1st, the United States Oil Fund LP (USO) has pulled back into support of its 20-day EMA. If USO can stabilize at this level, it could provide a buying opportunity above yesterday's high of $40.40. However, USO will probably need a few days to set up for a potential entry. We will continue to monitor this ETF for a potential long entry.



For the moment, we are keeping XLU on the watchlist. Although XLU gapped below support of its 20-day EMA, it worked its way back to close near session highs. However, if XLU trades below $34.69, we will nullify the setup. Yesterday's price action was quite bearish and we must now be watchful of further distribution. We now have four distribution days on the NYSE and three on the Nasdaq in the past 20 trading days. We will become concerned for the potential of a bigger market correction if either or both of these indices reaches more than 5 distribution days in a consecutive 20 trading day timeframe.

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.