Yesterday was a dismal day on Wall Street. Stocks got blistered, as all five major indices fell two percent or more. The S&P MidCap 400 led the decline, as it fell 2.7%. The small-cap Russell 2000 slid 2.5%, while the Nasdaq plunged 2.4%. Large cap stocks performed fractionally better. The S&P 500 shed 2.2%, while the Nasdaq lost 2.0% on the session.

In recent weeks, the S&P MidCap 400 has been the weakest of all of the major indices. Yesterday, it was the only index to close below its 200-day MA. Because of this relative weakness, we are looking to enter a position in the ProShares UltraShort MidCap 400 ETF (MZZ). The only way to enter this trade and keep the reward to risk ratio favorable, is to buy it on a pullback. We are adding MZZ to the watchlist. Trade details are available to our subscribers in the watchlist segment of the newsletter.



Yesterday, on a surge in volume, ProShares UltraShort FTSE China 25 ETF (FXP) gapped up, sliced through its 200-day MA and closed at session highs. A volume fueled move above yesterday's high of $30.00 could provide a buy entry trigger for this ETF. We are placing FXP on the watchlist. Trade details are posted in the watchlist section of the newsletter.



Given the magnitude and breadth of yesterday's distribution day, our market timing model has now flashed a sell signal. When powerful distribution days occur within a few days of a buy signal, the vast majority of the time the buy signal will fail. Such is the world of trading, particularly when markets are at key turning points. It is also noteworthy that not a single market sector that we track ended up on the day. Further, for the most part, leadership stocks got hit hard. This is further evidence that the bears are back in control.

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.