Stocks moved higher yesterday, but trade was light. All five major exchanges closed in positive territory, with the S&P MidCap 400 leading the way. The midcap index climbed a solid 1.3% yesterday. The small-cap Russell 2000 finished a close second, as it tacked on 1.2%. The Nasdaq, S&P 500 and Dow Jones Industrial Average rose 0.7%, 0.6% and 0.2% respectively.

Market internals ended on a mixed note for a third consecutive session. Volume fell on the Nasdaq by 8.5% and on the NYSE by 12.2%. However, advancing volume outpaced declining volume on both exchanges. On the Nasdaq, the spread ratio closed at 2.3 to 1 in favor of advancing volume, and on the NYSE the ratio was 3.7 to 1 in favor of advancing volume. Yesterday's light volume suggests that institutions such as mutual funds, hedge funds, and banks did not participate in the advance.

Over the past two days, the broad market appears to have been putting in at least a short-term bottom. However, the main stock market indexes are still in a dominant downtrend and we will be looking for short selling opportunities into any substantial bounces. Below are charts of the Nasdaq and the S&P 500 that show the next significant resistance levels on both indices. Notice that volume has, thus far, been light compared to the volume during the recent decline. This type of volume action is typically viewed as bearish. We will be looking for the S&P and Nasdaq to form bearish reversal candles, as they rally into the vicinity of their respective 10-day and 20-day moving averages, as a signal for taking on potential new short positions. This is shown on the daily charts below:





Since setting its most recent "swing high" on May 16th, the ProShares UltraShort Silver ETF ($ZSL) has been consolidating at support of its 20-day EMA. Notice that volume has declined during this consolidation period. It is generally considered a bullish signal when an ETF is consolidating during a significant trend. However, for the most ideal entry with a positive reward-risk entry, we would like to see an "undercut" of the 200-day moving average, presently around $61.27, followed by a bullish reversal candle. Alternatively, if the "undercut" does not happen, a secondary buy entry could be above the two-day high of $67.52. With this secondary entry scenario, the reward-risk ratio would be less favorable, so it would be entered with reduced share size in order to control risk. We will continue to monitor ZSL as a possible long candidate for subscribers:



With the broad market in the process of putting in a short-term bottom (new swing low), we will be watching carefully for a significant "accumulation day" as a possible signal for a trend reversal. Typically, we would recognize this to be at least a 1.5% gain in the Nasdaq and S&P 500, accompanied by higher volume. Until we see this type of price action, our prognosis for the market remains bearish, and we will continue to look for shorting opportunities into any rallies.

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.