Following through on Wednesday's late selloff, stocks were hit hard all session long with all major averages closing down at least 2.3% on the day. Total volume jumped by 39% on the NYSE and 23% on the NASDAQ, producing a second straight day of distribution for both the S&P 500 and NASDAQ.

Thursday's bearish price and volume action did quite a bit of technical damage to the daily charts, as all major averages are now trading below the prior swing low and the 50-day MA, signaling the uptrend is in danger of reversing. Because the prior swing lows have been broken, the averages are no longer making higher swing lows, which forces our timing model back in to neutral mode (we have a simple rule in place where can't establish new longs when the market is breakding down and setting lower highs and lower lows). Without a swing low in place, adding long exposure is not an option, especially when the volume patterns are once again turning negative on the NYSE and NASDAQ.







With the market timing model in neutral, our short-term plan is to wait for the market to gain some traction before establishing new longs. If leadership does not hold up and the averages fail to reclaim the 50-day MA, then we will look to take on some short exposure.

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.