Stocks closed lower yesterday, but near session highs. After a dismal start, stocks found a bid at the 11:30 am reversal period and rallied for the remainder of the day. The small-cap Russell 2000 Index had the best day, as it managed to shake off a 1.3% intraday loss to close flat on the session. Both the Dow Jones Industrial Average and the S&P 500 lost 0.2%, while the S&P MidCap 400 and the Nasdaq slipped 0.3% and 0.4% respectively.

Technically speaking, market internals provided a bearish signal yesterday. However, a deeper examination suggests that yesterday was actually a bullish "accumulation day" in the market. Volume skyrocketed by 29.1% on the Nasdaq and 26.6% on the S&P 500. Declining volume edged out advancing volume on the Nasdaq by a factor of 1.7 to 1 and on the NYSE by a factor of 1.2 to 1. But what's most important in evaluating whether a market is being bought or sold amongst institutions, such as mutual funds or hedge funds, is the intraday price action. The fact that all the major indices reversed sharply off their intraday lows on a significant spike in volume points to institutional accumulation, rather than distribution. Based on this analysis, we classify yesterday as an "accumulation day" for the broad market.

The Consumer Discretionary SPDR ($XLY) hit its trigger price for short sale yesterday and we entered the trade. However, we do not like the fact that XLY, like many other ETFs, reversed to close near its intraday high AND on higher volume. As such, we will be exiting the position at market on today's open. When a new swing trade entry moves in the wrong direction immediately after entry, it is often better to simply scratch the trade, or exit for a small loss, rather than letting the trade play out with its original stop price. This also enables the trader to get a better re-entry price on the trade if it still looks good thereafter.

Market bears and bulls have been in a knife fight over the past two weeks. Since the broad market formed a significant bottom on May 18th, there have been three "accumulation days" (higher volume gains) and one "distribution day" (higher volume loss) in the S&P and Nasdaq. Still, price action has been unimpressive and the main stock market indexes have been struggling to find higher ground. Given the indecisiveness in the stock market lately, we are inclined to remain on the sidelines until a definitive, convincing move in either direction occurs. Unlike mutual funds, which typically limit the maximum percentage of cash in their portfolios, one of the biggest advantages an individual trader has is the ability to simply move to cash when market conditions are not ideal. We call this "SOH mode" (sitting on hands), and right now is a great time to do so.

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.