Stocks kicked off the week with a moderate correction from last week's rally, as lighter volume indicated the bulls were merely taking a rest. The Nasdaq Composite ($COMPX) edged 0.2% lower. Both the S&P 500 Index ($SPX) and Dow Jones Industrial Average ($DJIA) dipped 0.3%. The small-cap Russell 2000 ($RUT) and S&P MidCap 400 ($MID) indices lost 0.7% and 1.1% respectively. Although the percentage losses in the small and mid-cap stocks were larger than the rest of the broad market, bear in mind that small and mid-caps also outperformed within the broad market last week. The main stock market indexes closed near the middle of their relatively tight intraday trading ranges.

Turnover in both exchanges fell significantly, which was a positive sign that institutional traders were not active participants in yesterday's selling pressure. Total volume in the NYSE was 28% lighter than the previous day's level, while volume in the Nasdaq similarly receded 26%. Across the board, trading also fell back below 50-day average levels. In the Nasdaq, declining volume exceeded advancing volume by a margin of approximately 2 to 1. The NYSE ADV/DEC volume ratio was just fractionally more negative.

In yesterday's commentary, we said there is currently a lack of new ETF trade setups with low-risk entry points at current levels, but that we were continuing to build an increasing list of ETFs with relative strength to be considered for potential swing trade entry when the stock market pulls back or enters into a new base of consolidation. The moderate decline in yesterday's session was a good start that caused most ETFs to retrace from their recent highs, but the pullback was not yet substantial enough to cause any individual ETFs on our radar screen to form low-risk entry points for swing trading. However, we continue building to that list with new potential trade setups. Today, we look at the buy setup in Rogers International Commodity Index ETF ($RJA).

After forming a two-month base of consolidation near its 52-week high, RJA sold off sharply yesterday to close right at key intermediate-term support of its 50-day moving average. Because it was the first touch of the 50-day moving average since breaking out from its lows three months ago, odds are good that RJA will soon move back up, break out of its consolidation, and cruise to a new 52-week high. However, in order to more clearly define our reward to risk ratio and to assist in setting our stop price, we are now looking for a possible reversal candle to form and an "undercut" below the 50-day moving average. If that occurs, we will likely add RJS to our "official" watchlist for potential buy entry. The hypothetical, ideal price action is annotated on the daily chart of RJA below:



As analyzed thoroughly in yesterday's newsletter, we are now monitoring Regional Banks SPDR ($KRE) for possible swing trade entry. As anticipated, it sold off a bit yesterday, but has not yet retraced to the level where we would to find it to be an ideal entry point. Additionally, iShares Hong Kong Index ($EWH) is an international ETF we have been stalking for potential buy entry on a pullback. If RJA forms a pattern similar to the price action annotated on the chart above, will be looking to enter it as well.

Yesterday, we sold ProShares Ultra Russell 2000 ($UWM) for a gain of approximately 9% with a holding period of less than two weeks. Now, we are flat in the ETF portfolio, but are actively looking to assume additional risk exposure as the best technical trading setups present themselves with low-risk entry points.

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.