Stocks rallied about 0.5% in the morning session, pushing the NASDAQ Composite to within 0.3% of the prior high. The morning surge may have been just enough to entice a few bears out of the cave and start buying in anticipation of a move to new highs in the NASDAQ, but the party did not last long because stocks sold off sharply just after 3 pm and erased the morning advance.

All indices closed near the lows of the day due to the late selling, with only small and mid-caps barely finishing in positive territory. As we mentioned last week, although the NASDAQ is in decent shape, the S&P 500 has failed to reclaim the 50-day MA and the Dow Jones is nowhere near the 50-day MA. This divergence most likely points to the market needing to consolidate for a few weeks.

Due to yesterday's stalling action in the averages, we have tightened up the stops in a few ETF positions. We are sticking with a loose stop in $TAN, as we are only holding a 25% position and would like to see how the price action holds up at the 50-day MA over the next few weeks:



While we have tightened up the stops on a few positions, we remain bullish on crude oil, as the price action in the United States Oil Fund ($USO) has shown relative strength versus the S&P 500 as of late. The relative strength line in the bottom half of the chart below has broken out to new highs ahead of the price action, which is a bullish sign:



Please note the new $USO buy entry in the watchlist section above. Since the consolidation over the past few weeks has been pretty tight, we feel comfortable adding to the position over the two-day high in anticipation of a move to new highs within the next week or two.

Monday's late selling action was a strong reminder to all that market conditions are still not healthy, which is why our timing model remains in neutral. If you are new to our newsletter, it is fine to have on a few long positions that recently triggered, but you probably do not want get much above 30-40% long exposure until conditions improve. However, it is possible to have more than 50% exposure if you are holding onto a winners from earlier buy 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.