Stocks were hit hard for a fifth consecutive day on Friday on a big spike in trade. Friday ended the worst week of the year for the market. For the day, both the Nasdaq and the S&P MidCap 400 slumped 1.2%, while the small-cap Russell 2000 dropped 1.0%. The S&P 500 and the Dow Jones Industrial Average fared slightly better than the higher-beta indices, as they fell 0.7% and 0.6% respectively.

For the fourth day in a row, market internals remained in a bearish spiral. Volume jumped on the Nasdaq by 30.0% and on the NYSE by 22.9%. However, Friday's higher volume was in large part due to options expiration. Declining volume outpaced advancing volume on the NYSE and the Nasdaq by factors of 2.4 to 1 and 1.6 to 1 respectively.

On May 9th, the ProShares UltraShort Euro ETF ($EUO) rallied above key resistance at the $20.00 area, then subsequently set a new "swing high" near the $21.00 level. Last Friday, EUO began showing signs of correcting as it sold off for the first time in nearly three weeks. In the coming days, EUO may offer a buying opportunity on a pullback to near its 20-day EMA. Ideally, we would like to see EUO form a bullish reversal candle near this key mark, as this would offer a possible pivot point to open a long position. We will continue monitoring EUO for a possible entry and will list the trade setup on our watchlist for subscribers of The Wagner Daily, the daily swing trading newsletter with our best stock picks and ETF trades, if the trade soon meets our parameters for buy entry.



Over the past two sessions, the DB Double Gold Short ETN ($DZZ) has pulled back from its recent highs. Last Friday, DZZ lost minor support of its 10-day MA and now appears headed for more substantial support of the 20-day EMA. An "undercut" of the 20-day EMA, followed by the formation of a reversal candle could present a buying opportunity in DZZ.



Our remaining 3 inverse and short open positions are rapidly approaching their price targets. However, given last week's precipitous decline in the market, we will be locking in profits by closing all three positions ($RTH short, $XLY short, and $TZA long) at today's (May 21) open. All the major indices are now trading at or near major support of their respective 200-day moving averages, which may lead to a substantial bounce in the near-term. Because of this, we are not interested in taking on new short positions at current levels. Further, since we stocks are now an established downtrend, we are not inclined to play the long side of the market either. Instead, as long as our market timing model continues to provide an overall sell signal, we will be looking to establish new short positions into strength when the major indices bounce into resistance. Now is the perfect time to be patient in the market, especially considering our recent profitable short and inverse trades as the broad market declined last week. Opening new trades at the current levels involves taking on too much risk with minimal upside potential (negative reward-risk ratio). Nevertheless, select currency ETFs such as $EUO or commodity ETFs like $DZZ (discussed above) could be nice plays because they have a low correlation to the direction of the overall equities markets.

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.