Stocks closed mixed on Wednesday but lower for the week. All the major indices closed well off session highs but trade was light. Both the Nasdaq and the S&P MIdCap 400 were the day's winners as they tacked on 0.1%. The small-cap Russell 2000 slid a modest 0.2%, while both the Dow Jones Industrial Average and the S&P 500 lost 0.3%.

Market internals also ended the day mixed. Volume slid on the Nasdaq by 13.1% and on the NYSE by 1.5%. Declining volume edged out advancing volume on the Nasdaq by 1.1 to 1. On the NYSE, declining volume held a 2 to 1 advantage to advancing volume. There's very little information that can be gleaned from Friday's internals.

Since March of this year, the iShares Russell 2000 Index Trust (IWM) has tested support near $78.00, and in the process formed a "head and shoulders" like pattern. This bearish formation in the underlying Russell 2000 Index was initially pointed out in this newsletter last week. Now, a move below last Friday's low of $78.42 could result in a break of the neckline of the head and shoulders pattern. A drop below this key market would likely result in a quick move down to the 200-day MA for IWM:



Since losing support of its 20-day EMA and 50-day MA on May 7th, the SPDR S&P Retail ETF (XRT) has found resistance at these key levels. Last Friday, XRT formed a bearish reversal candle, as it failed to reclaim its 20-day EMA for the second time in as many days. A move below the two-day low of $59.72 could present a shorting opportunity in this ETF. Subscribers should note we have placed this XRT short setup on the Watchlist section of this newsletter, where detailed entry, stop, and target prices can be found:



The market continues to exhibit indecision and has "ping ponged" in a tight four-day trading range. However, the longer stocks continue consolidating at their lows, the higher the probability that the next significant move in the market will be lower. We're keeping a close eye on the small-cap Russell 2000. A loss of support in this index could pull the entire market lower.

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.