Stocks got hit hard on Friday as volume expanded. The Dow Jones Industrial Average showed the most strength, as it contained losses to 0.9%. The S&P 500 slid 1.0% while the S&P MidCap 400 and the small-cap Russell 2000 shed 1.1% and 1.3% respectively. The Nasdaq was the day's biggest loser. By the closing bell, the tech-rich index had shed 1.4%.

Market internals were bearish on Friday. Volume climbed by 17.7% on the NYSE and 2.6% on the Nasdaq. Declining volume outpaced advancing volume by a factor of 3.3 to 1 on the NYSE and 3.2 to 1 on the Nasdaq. Higher volume points to institutional participation in the selloff. As a result, we would label Friday as a distribution day on both exchanges.

Yesterday, the SPDR S&P Bank ETF (KBE) formed a massive reversal candle, as it tested the four day high, but reversed to close near the nine day low. A volume fueled move below yesterday's low of $21.40 could present a short entry trigger for this ETF.



UNG performed well on Friday (we have a 5% unrealized gain), but volume was light and has been declining over the past two days. We would have liked to have seen volume expand on the breakout. Consequently, we are raising our stop in UNG. Trade specifics can be found in the open positions segment of the newsletter.

The market continues to struggle in finding a direction and yesterday's distribution suggests market bears could soon gain control of the action. Given Friday's higher volume selling, we would expect to see follow through to the downside, at least at the open, on Monday.

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.