In a quiet day of trading, stocks rebounded on Friday but only reclaimed some of the losses from Thursday's dismal performance. The small-cap Russell 2000 added 1.4%, while the Nasdaq climbed 1.2%. The S&P 500, S&P MidCap 400 and the Dow Jones Industrial Average tacked on 0.7%, 0.6% and 0.5% respectively.

Internals were bullish on Friday but these numbers must be interpreted with caution. Volume surged higher on both exchanges but the higher trade is directly attributable to the rebalancing of the Russell stock indices. Trade increased on the Nasdaq by 27.4% and on the NYSE by 5.9%. Advancing volume outpaced declining volume by 2.1 to 1 on the NYSE and 3.0 to 1 on the Nasdaq. Technically, Friday would be classified as an accumulation day. However, given the impact of rebalancing, Friday's volume numbers are difficult to interpret and may be suspect.

On Friday, the ProShares UltraShort MSCI Emerging Markets ETF (EEV) consolidated near the highs of Thursday's powerful move. EEV may provide a buying opportunity if it continues to consolidate near the two day high and forms a pivot, such as a bullish pennant. We will be monitoring this inverse ETF closely for a potential buy entry.



Our watchlist candidates, FXP & MZZ, both triggered on Friday and we now are long both inverse ETFs. Friday's price and volume action, although somewhat suspect, still added confusion to a market that is trying to establish a direction. We advise treading carefully through the current market landmine.

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.