Yesterday, stocks lost ground on higher trade and closed near session lows. Higher-beta issues led the decline, as the small-cap Russell 2000 and the S&P MidCap 400 fell 2.0% and 1.9% respectively. The S&P 500 lost 1.4%, while the Dow Jones Industrial Average slid 1.3%. The Nasdaq showed the most resiliency on the day, but still dropped 1.1%. Of the one hundred and four sectors that we track, only the computer hardware sector closed in positive territory.

In a reversal of Tuesday's action, market internals ended the day on a bearish note. Turnover rose on the Nasdaq by a modest 0.4% but on the NYSE it climbed by 2.2%. Declining volume overwhelmed advancing volume by a ratio of 13.8 to 1 on the NYSE and 5.6 to 1 on the Nasdaq. Based on market internals, we would classify yesterday as a "distribution day" for the market. Given that the previous session was an "accumulation day" (higher volume gains), it is fair to say a bit of tug-of-war is starting to occur in the stock market.

Yesterday, the S&P Select Consumer Discretionary SPDR ETF ($XLY) surrendered support of its 20-day EMA, as it gapped down and closed near session lows. As such, a higher volume breakdown below yesterday's low of $43.07 could now provide a potential short entry trigger for this ETF. Regular subscribers to The Wagner Daily stock newsletter should note our detailed entry, stop, and target prices in the "watchlist" section of this newsletter. Note there is no inverse ETF for the consumer discretionary sector, but $XLY should be easy to borrow for short selling from most direct access brokerage firms.



Wednesday's price action quickly put a damper on the positive momentum the market gained on Tuesday. For the moment, it appears as if market bears are not yet ready to relinquish control of the market. Further, the analysis we provided in yesterday's commentary, in which we suggested the major indices would first "undercut" their 200-day moving averages before moving higher, now appears even more likely to occur.

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.