Stocks recovered dramatically from session lows yesterday, on higher volume. All five major indices closed lower on the session but well off their worst levels of the day. The S&P 500 contained losses to 0.5% after being as much as 1.2% down on the day. The Nasdaq rebounded from 1.7% loss to finish the day lower by 0.8%. The Dow Jones Industrial Average, S&P MidCap 400 and small-cap Russell 2000 all slipped 0.3%. Still, the S&P 500 fell for a sixth straight day on Thursday, while the Nasdaq fell for the fifth time in five days.

Market internals ended the day on a negative not but yesterday's action was far from bearish. Volume increased by 5.3% on the Nasdaq and 7.6% on the NYSE, while declining volume held the upper hand on both exchanges. At the close, the ratio of declining to advancing volume stood at a minus 2.5 to 1 on the NYSE and a minus 2.7 to 1 on the Nasdaq. Despite the negative internals, the substantial intraday reversal in price action points to institutional accumulation and not distribution.

Since the market began selling off over a week ago, the iShares Nasdaq Biotechnology ETF (IBB) has show considerable realative strength to the broad market. While the Nasdaq was losing support of both its 20-day and 50-day moving averages, IBB only undercut its 20-day EMA. Further, IBB quickly regained support of the 20-day EMA after undercutting it sharply yesterday. IBB ended the day near session highs. A volume fueled move above $131.01 could present a buying opportunity in this ETF. We are monitoring IBB closely for a possible long entry.

 

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.