Stocks struggled on the last day of April, but trade was light. All five major indices closed in the red. The decline was led by higher beta issues as small-cap Russell 2000 shed 1.0%, while the S&P MidCap 400 and the Nasdaq lost 0.8% and 0.7% respectively. The S&P 500 fared somewhat better, as it slipped 0.4%. The Dow Jones Industrial Average showed the most pluck as it fell just 0.1%.

Despite the negative price action, market internals closed mixed. Volume was lighter on the Nasdaq by 9.6% and on the NYSE by 0.4%. Declining volume topped advancing volume by a ratio of 1.8 to 1 on the NYSE and 1.3 to 1 on the Nasdaq. Monday marked the third consecutive day of mixed internals for the broad market.

The Market Vectors Pharmaceutical ETF (PPH) was one of the strongest ETFs in the market during the most recent pullback. Over the past four sessions, PPH has rallied back into resistance of its most recent swing high (52 week high) of $38.96. PPH could offer a buying opportunity on a pullback and undercut of its 20-day EMA. The formation of a reversal candle at that key support level would provide the perfect entry pivot. The possibility exists that PPH could move higher from its current level, but the reward to risk ratio would not be well enough in our favor to enter the trade at this price.



Since testing resistance near $34.40 on April 26th, the S&P Select Consumer Staples SPDR Fund (XLP) has pulled back over the past two sessions. Ideally, we would like to see XLP form a higher low by undercutting its 20-day EMA and forming a reversal candle. As with PPH, a reversal candle would provide a potential entry pivot for XLP. However, XLP could also provide a possible buy entry trigger if it clears its 52-week high at $34.42.



As we anticipated in yesterday's newsletter, the market pulled back on Monday. If the market remains strong, we wouldn't be surprised to see another day or two of modest selling. This type of price action is probably needed for setups to form and for the market to build a proper base for another possible move 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.