After two days of solid gains, the major averages chopped around in a tight range all day on light volume. Most averages closed in the -0.1% to +0.1% range, except for the small cap Russell 2000, which showed a bit of relative strength at +0.5%. The current bounce in the S&P 500 has retraced about half of the prior decline before stalling out at the 20-day simple moving average on Monday.

The volume pattern in the NYSE and NASDAQ remains bearish, as we have yet to see any heavy volume accumulation days the past few weeks. Because of this, we would not be surprised to see the market eventually test the prior swing low and continue to stay range bound for another week or two.

Like the broad based averages, Merrill Lynch Semiconductors HOLDRS ($SMH) may also need more time to consolidate before resuming the uptrend. The price action found support at the 20-day EMA after a false breakout and could possibly make its way back to the range highs by the end of the week.



Direxion Daily Financial Bull 3X Shares ($FAS) bounced just shy of the 50-day MA last week. If $FAS continues to hold the $65 level, then we could see a low risk buy point emerge within the next week or two. Note the price action in the box on the chart below, which shows how the pattern could play out over the next 5-10 days.



We are basically looking for $FAS to form a higher swing low within the base to signal that the correction is potentially over.

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.