Although the NASDAQ and leading tech stocks have been getting smacked around over the past two weeks, the relative strength in the Dow Jones and the S&P 500 suggests that institutional money is running to safer, lower-beta names in anticipation of a market correction.

The relative strength in the S&P 500 could also suggest that the index may chop around near its 50-day moving average for several weeks, rather than pull back in significantly. How the weekly charts of the transports, financials, and energy stocks hold up over the next few weeks will be key.

As of right now, the S&P 500 has retraced less than 38.2% of the last advance and still remains above the 10-week moving average, which is bullish action. However, it may be tough for the SPY to continue to hold up with one or two more distribution days:



The Nasdaq Composite is much weaker, having already retraced close to 61.8% of the last advance while breaking the 10-week MA on heavy volume:



Having an idea of where a market may or may not go is fine. However, we are never married to any one scenario playing out. The need to predict price action is a big problem for most traders. The key is to focus on what is going on right now and be prepared to react.

Last week, Internet ETF $FDN and Cloud Computing ETF ($SKYY) joined $IBB by breaking down below the 10-week MA on big volume, providing a clear sell signal for the intermediate-term momentum trader:



For the shorter-term momentum swing trader, a break of the 20-period EMA on the daily chart when a stock is in trend mode is a simple, yet effective warning sign that the current uptrend is running out of steam. As mentioned above, the 10-week MA is the line in the sand for the intermediate-term trader, especially when volume is very heavy and there is a close at the lows of the week.

Last week, we discussed the possibility of the Nasdaq Composite following the action in $IBB by pulling back to the lows of February and potentially creating a head and shoulders topping pattern (see our March 27 commentary). This pattern would probably need six to eight weeks to flesh out before it is actionable, but it is still a potential short setup to keep an eye on.

With the timing model on a sell signal, we will also continue to monitor non-equity related areas such as bonds ($TLT) or currency ($FXE) for low-risk pullback buy entries (if they develop).

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.