Stocks got pounded on Wednesday as trade quickened. All five major indices closed down 1% or more. The decline was led by the small-cap Russell 2000, which fell 1.7%. The Nasdaq dropped 1.5% while the S&P MidCap 400 lost 1.4%. Both the Dow Jones Industrial Average and the S&P 500 shed 1.0% yesterday.

Market internals were clearly bearish yesterday. Volume rose on the NYSE by 2.9% and on the Nasdaq by 1.1%. Declining volume overwhelmed advancing volume by a ratio of 5.7 to 1 on the NYSE and 6.9 to 1 on the Nasdaq. This was the biggest disparity we have seen between down and up volume all year. It is safe to say that both the NYSE and the Nasdaq fell under institutional distribution yesterday.

Although we are not at the point of making a bearish call on the market, one ETF that is showing considerable relative weakness is the Market Vectors Gold Miners ETF (GDX). Over the past month, as the broad market has rallied, GDX has entered a clear downtrend. If the market provides us with a sell signal sometime soon, GDX could provide an excellent shorting opportunity on a bounce into resistance. Although we are not yet looking to take on short exposure, it's always good to be prepared for a shift in market conditions.





Overall, yesterday was a difficult day on Wall Street. We saw distribution across the board. We now have four distribution days in the past twenty sessions on the Nasdaq and six on the S&P. The market is now close to providing us with a sell signal. It is still too early to suggest that we should be exiting the market entirely, but another distribution day in the next two sessions would be a big cause of concern. Leadership stocks are still holding up well and the number of stocks closing lower by 4% or more has been well below extreme readings. Further, we are still well within the trading range on all of the major indices. However, things can change quickly. The next several sessions should provide an important gauge as to the health of the market. If we see another distribution day in the next two sessions, things could deteriorate quickly.

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.