Following through on last Friday's weak closing price action, the broad market gapped lower on yesterday's open. However, stocks quickly stabilized and traded in a choppy, sideways range throughout the first half of the day. Buyers stepped into the market in the final two hours of trading, enabling the major indices to move to new intraday highs and trim their closing losses. Both the S&P 500 Index ($SPX) and Dow Jones Industrial Average ($DJIA) settled 0.2% lower, while the Nasdaq Composite ($COMPQ) lost 0.6%. The small-cap Russell 2000 Index ($RUT) and S&P MidCap 400 Index ($MID) slipped 0.4% and 0.2% respectively. All the main stock market indexes closed in the upper third of their intraday highs.

Volume fell substantially across the board, which was not surprising given that the previous day's session was quarterly "quadruple witching" options expiration day. Turnover in the NYSE eased 35%, as total volume in the Nasdaq receded 27% below the prior day's level. Even factoring out last Friday's volume spike that was due to options expiration, trade in the NYSE was still below its 50-day average level. Nasdaq volume was only fractionally higher than average. Therefore, it's safe to say that yesterday was not a "distribution day," which would've been indicative of institutional selling. As for market internals, declining volume exceeded advancing volume in the Nasdaq by a margin of just over 3 to 1, but the NYSE ADV/DEC volume ratio was only negative by a ratio of just over 3 to 2.

One not so obvious situation we observed in yesterday session was the relative strength in international ETFs. In the September 21 issue of The Wagner Daily and on this blog post, we discussed that international ETFs, particularly those of emerging markets, were starting to show signs of bullish price momentum. That initial observation is now being manifested by the fact that all the ETFs we discussed that day managed to close slightly higher in yesterday's session, despite the losses in the S&P 500 and Nasdaq. The iShares Philippines Index ($EPHE), which we bought in our model ETF trading portfolio on September 21, gained 0.8% yesterday. The other international ETF we bought the same day, iShares Emerging Markets ($EEM), managed to eke out a gain of 0.1%. The iShares Hong Kong Index ($EWH) and iShares Mexico Index ($EWW), both of which have also been on our radar screen over the past several days, rose 0.3% and 0.2% respectively.

The increasing relative strength we are starting to see in emerging markets ETFs is positive not only for our open positions, but as a sign for the overall health of the broad market as well. If money is rotating into these ETFs, we view it as an indication of increasing appetite for risk amongst market participants, just as relative strength in the small-cap stocks is typically a positive sign for the broad market. In case you missed our initial entries into EPHE and EEM last Friday, either ETF could be bought near yesterday's closing prices, as both ETFs are still trading within only about ten cents of our initial entry prices. We also like the current pattern in EWW, which is shown on the daily chart below:



EWW, which is trading near its all-time high, has gently pulled back from its "swing high" of September 14, and is holding above new horizontal price support of its prior breakout level, as well as its 20-day exponential moving average. The ETF also formed a bullish reversal candle yesterday by gapping lower on the open, then reversing to close positive and near its intraday high. With this pattern, EWW could be considered for buy entry just above yesterday's high, with a stop below the 20-day exponential moving average. This would provide one with a positive reward to risk ratio on the trade. However, because we already have exposure to two different international ETFs in our model ETF portfolio, we are not listing EWW as an "official" trade setup in today's newsletter.

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.