Stocks recovered from a morning gap down to close lower but well off session lows, on light trade. Small cap stocks suffered the most yesterday as the Russell 2000 and the S&P MidCap 400 shed 1.0% and 0.7% respectively. The Dow Jones Industrial average lost just over 0.5% while the S&P 500 closed down by 0.3%. The Led by strong a strong recovery by AAPL and a strong performance by AMZN, the Nasdaq showed the most resiliency on the day as it finished lower by a scant 0.1%. Airlines, retailers and banks fared well on the day, while the coal, oil services and transportation sectors struggled.

Market internals closed mixed for a fifth consecutive session yesterday. Volume was down on the Nasdaq by almost 2.0% and on the NYSE by 3.1%. Declining volume topped advancing volume by a ratio of 1.8 to 1 on the NYSE and 1.4 to 1 on the Nasdaq. Yesterday's light volume takes a lot of the sting out of the selloff. What's most important is that we avoided a distribution day on both the Nasdaq and the NYSE.

Over the past three weeks the iShares MSCI All Peru Capped Index (EPU) has been consolidating in a tight range as it has set a sequence of higher lows. Yesterday, EPU formed a big reversal candle as it undercut the 20-day EMA but managed to recover and close in the upper 25% of its intraday range. A volume fueled move above the two day high of $44.88 could provide a buying opportunity in EPU. We are placing EPU on the watchlist. Trade details are provided for our subscribers in the watchlist section of the newsletter.



The United States Gasoline Fund (UGA) has formed a technical pattern similar to EPU, as it has set a sequence of higher lows over the past three weeks. Further, on March 15th, UGA formed a distinct reversal candle and now appears primed to take out the swing high pivot set on March 14th. A move above the March 14th high of $58.07 will likely provide a buy entry trigger for this ETF.



Overall, we would consider yesterday a victory for market bulls since a distribution day was avoided and for the most part the major indices recovered most of their losses into the close. As we continue to avoid distribution days, it appears more and more likely that the market is headed 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.