After two days of strong buying, stocks took a break on Monday, as they closed modestly lower on light trade. All of the major indices ended the session approximately in the bottom third of their respective ranges. However, the intraday ranges were fairly tight, which is a good sign for market bulls. The small-cap Russell 2000 led the move lower, as it posted a 0.6% loss on the day. The Nasdaq dropped 0.4% while the S&P MidCap 400 ended the day down by 0.3%. Blue chip stocks performed slightly better on the day. By the closing bell the S&P 500 posted a small 0.1% decline while the Dow Jones Industrial Average ended the session fractionally lower.

Internals ended the session mixed. Volume fell significantly across the board. On the Nasdaq, turnover slid 29.0% and on the NYSE it fell 26.5%. On the NYSE advancing volume ended at par with declining volume. However, on the Nasdaq, declining volume held the upper hand by a factor of 2.1 to 1. Monday was a neutral day with respect to market internals. The light volume move lower suggests that institutions were on the sidelines yesterday.

The SPDR S&P Biotech (XBI) has been consolidating in a tight range at the highs the past few weeks. XBI could pull back in to support this week and present us with a low risk entry point if it holds support of the 20-day EMA.



On the weekly chart below, the SPDR S&P Homebuilders (XHB) has formed a 14-week consolidation just below the 52-week high. There are two potential entry points. One is on a breakout above $22.00 and the other is on a pullback to the 21.20 - 21.30 area (the 20-day EMA on the daily chart).

 

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.