Although most averages were down considerably on Friday, total volume was noticeable lighter on the NYSE and Nasdaq, which prevented the major averages from suffering another distribution day. Volume fell off Thursday's pace by 15% on both exchanges. Our market timing model remains in neutral territory, since most breakouts in leadership stocks have failed to impress over the past few weeks. Should leadership stocks begin to breakdown en masse and the market suffer more distribution, then we would probably see the model shift to a sell signal.

With the market in short-term oversold territory, the reward to risk ratios do not favor establishing new short positions at current levels. However, our long scan did produce a few potential buy candidates and one new watchlist setup in the iShares MSCI All Peru Capped Index Fund ($EPU). The weekly chart below is showing a potential long-term downtrend line breakout after a tight ranged, multi-month consolidation.



The daily chart of $EPU is showing a tight consolidation above the 200-day MA, with the 50-day MA recently crossing above the 50-day MA. Note the higher swing low within the base in early December. We are placing $EPU on the watchlist, and trade details can be found in the Watchlist section above.

 

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.