Stocks slipped lower on Wednesday on higher trade. All five major indices closed in the red. The small-cap Russell 2000 showed the most relative weakness yesterday, as it fell 0.9%. The Nasdaq, S&P 500 and S&P MidCap 400 all dropped 0.4%, while the Dow Jones Industrial average lost just over 0.6%. The computer services, Insurance and telecommunications sectors took the biggest hits yesterday, while gambling and travel & tourism fared well.

Market internals ended the session on a bearish note. Volume rose by 4.0% on the Nasdaq and 2.7% on the NYSE. Further, declining volume outpaced advancing volume on both exchanges by a ratio of 2.2 to 1. Based on the higher volume, the higher declining volume, and the negative price action, we would categorize yesterday as a distribution day on both exchanges.

In the April 18th newsletter, we stated that SPDR S&P Metals and Mining ETF (XME) was a potential short sale candidate. Yesterday, XME repeated the prior day's price action, as it formed a reversal candle and closed near session lows. Now, a move below yesterday's low of $48.22 could present a short selling opportunity in this ETF. As such, we are placing XME on the watchlist for potential trade entry. For our subscribers, our exact entry, target, and stop prices are provided in the watchlist segment of the newsletter: (see ETF notes section above for an inverse ETF alternative to shorting XME).



During the recent round of selling, the SPDR S&P Bank ETF (KBE) has pulled back and held support at its 50-day MA. Over the past five sessions, KBE has twice attempted to rally above resistance at $23.49. A volume-fueled move above this key mark could provide a buy entry trigger for KBE. As always, trade details are posted in the watchlist section of the newsletter:



Overall, the market attempted to gain its footing yesterday, but came up short and ultimately posted a modest distribution day. Although the market is not falling apart, the more "distribution days" (sessions of higher volume selling) that accumulate, the more likely it becomes that we will at least test the recent swing low support levels. For now, all new positions should be entered with reduced share size. Simultaneously being positioned long in a stock or ETF with relative strength to the broad market and short a position wth relative weakness is a low-risk way to play the market while it remains in "no man's land." At the least, consider keeping your powder dry with a mostly cash position.

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.