Stocks gapped sharply lower at the open on Monday, but clawed their way back to close near session highs. Trade was light. High beta stocks led the decline. The small-cap Russell 2000 plunged 1.6% while the S&P MidCap 400 and the Nasdaq slid 1.3% and 1.2% respectively. The S&P 500 lost 0.9% and the Dow Jones Industrial Average fell 0.8%.

Market internals ended the session mixed. Volume dropped on the Nasdaq by 10.1% and on the NYSE by 6.2%. However, declining volume easily outpaced advancing volume on both exchanges by a factor of 4.4 to 1. The market escaped distribution yesterday, as volume was light. Although the DJIA, S&P 500 and Nasdaq all finished well off session lows, the light volume accompanying the recovery casts a shadow on the significance of the move.

Since rallying to reclaim its 200-day moving average in mid-May of this year, the Direxion Daily China Bear 3x ETF (YANG) has been consolidating in a range between $14 and $18. Over the past ten sessions, YANG has been holding support of its uptrending 20-day EMA. Yesterday, on a pickup in volume, this ETF gapped up and momentarily rallied above resistance of the trading range. YANG could offer a buying opportunity on a pullback into support of its 20-day EMA. We will be following this inverse ETF closely as a potential long candidate.

 

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.