Stocks ended the week on a sour note, amidst mixed trade. All five major indices ended the session in the bottom half of their respective intraday trading ranges, but managed to close off session lows. Both the Nasdaq and the small-cap Russell 2000 plummeted 1.3%, while the S&P MidCap 400 fell 1.2%. Both the S&P 500 and the Dow Jones Industrial Average lost 1.0%.

For the second day in a row, internals ended the day mixed. While volume slid on the NYSE by 9.3%, it rose on the Nasdaq by 2.3%. However, declining volume held the upper hand on both exchanges. By the closing bell, the ratio of declining to advancing volume ended at 4.6 to 1 on the NYSE and 3.8 to 1 on the Nasdaq. Based on the higher volume and negative price action, we would classify Friday as a distribution day on the Nasdaq. The light volume on the NYSE suggests that institutions were not seriously involved in the selling on this index. Still, on a relative basis, volume was quite light for the third consecutive day and this makes the distribution day on the Nasdaq somewhat suspect. With the Holiday out of the way, volume should pick up in the coming week.

From March through Late June of this year, the S&P Select Consumer Staples SPDR ETF (XLP) consolidated, forming a potential support base for a breakout. On June 29th, XLP broke out from this base to set a new 52 week high. Further, this breakout occurred on a substantial uptick in volume. Over the past two sessions, XLP has pulled back and could provide a buying opportunity on an undercut of its 10-day and/or 20-day moving averages. We are monitoring this ETF closely for the formation of a reversal candle that could serve as an entry pivot in XLP.



It's always difficult to gauge market action when volume is light. Last week's market action was further complicated by the Holliday shortened trading week. Our market timing model still reflects a buy signal but we now need to see better price action from our open positions. Ultimately, in trading, price action is all that matters.

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.