Stocks closed mixed on Monday on light trade. The day began with the major indices opening lower, but buyers stepped in to move the markets higher for most the session. However, a late bout of selling took the averages off session highs, dampening the day's results. The S&P MidCap 400 showed the most strength yesterday, as it managed a 0.4% gain. The small-cap Russell 2000 tacked on 0.2%. Both the S&P 500 and the Nasdaq closed flat on the day, while the Dow Jones Industrial Average lost 0.2%.

Market internals were also mixed yesterday. Volume dropped by 6.4% on the NYSE and 9.9% on the Nasdaq. However, on the NYSE, advancing volume modestly outpaced declining volume, while on the Nasdaq just the opposite occurred. Overall, Monday's market internals provided no indication that the current wave of selling might be weakening.

Since early March, the Market Vectors Russia ETF ($RSX) has been one of the weakest ETFs in the market. RSX has been in a clear downtrend for the past 2.5 months, as it has set a sequence of lower highs and lower lows. Last week, on a burst of volume, this ETF lost support near the $29.30 level. A rally back into resistance of this key mark could provide a shorting opportunity in RSX.



The SPDR S&P Regional Bank ETF (KRE) has shown relative strength during the most recent round of selling in the major indices. If KRE can reclaim support of its 20-day and 50-day moving averages and if the market can provide a valid buy signal, this ETF could be in play as a long candidate:



As planned in yesterday's newsletter, we closed our long position in $SOXS at the open for a gain of nearly 9%, with just a four-day holding period. We will continue to monitor SOXS for a potential re-entry, but we generally take profits quickly on inversely correlated "short ETFs." Presently, we remain long ProShares UltraShort Emerging Markets ($EEV), with our protective stop just below breakeven now.

With our market timing model still showing an overall "sell" signal, there is nothing to do on the long side right now other than build a watchlist of stocks that are holding up well (showing relative strength to the market). However, it is very tough for many new traders to sit back and do nothing, even when they know that trading in current conditions (on the long side) is very risky. For example, $NTES triggered a potential buy entry above $60.00 yesterday. We liked the pattern and the big reversal bar action, but market conditions are terrible right now, so this is something we can't buy today over yesterday's high. Some traders may suggest there is nothing wrong with taking a small position in the setup, but when conditions are quickly deteriorating, it becomes very difficult to manage risk. As such, even a small position can easily turn in to a bigger than expected loss. As such, we prefer to hold primarily a cash position at the moment, and are being cautious with respect to opening any new trades.

There is no change to our near-term plan, which is to avoid trading for a few days. With the market in "oversold" territory at the moment, we could easily see a quick two to three day reversal to the upside, so it is a bit late to establish new short entries here. As for the long side, we are forced to lay low until market conditions improve.

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.