After a false breakout to new highs in early April, and a false breakdown below the 50-day moving average less than two weeks later, the S&P 500 is still range-bound and lacking conviction on either side of the market.

The indecisive price action in the S&P is mirrored by the Transportation ETF ($IYT), which has failed to follow through on the past three breakouts to new highs.

$IYT remains above the uptrend line and continues to set higher swing lows, but the volatility as of late does not inspire much confidence.



Livestock ETF ($COW) continues to build a solid base on top of the 50-day moving average.



The 50-day moving average has supported the price action on both touches in April. The first touch of the 50-day moving average after a strong advance, within a new uptrend, is usually a low-risk entry point.

Since clearing the $31.25 area last week, $COW has pulled back into the 20-day exponential moving average, and is trading in a tight range the past few days at the downtrend line.

If you are not a subscriber who is already long, potential entry points are a move above the two-day high or a pullback to 50-day moving average (around $31).

Since market conditions are not ideal and most sector based ETFs are not producing quality buy patterns, we simply do not feel comfortable establishing new long positions right now. But although the NASDAQ remains a drag on the market, the S&P 500 is not far from new highs, and could attempt to breakout at any time.

As mentioned in yesterday's report, the stock side of our portfolio is focused on position trading small and mid-cap earnings growth stocks, and swing trading stocks with a ton of momentum and relative strength over the past 6 to 12 months.

When conditions are not ideal, we do not like to deviate too much from what we do best. At some point, market conditions will either improve (with new setups) or deteriorate and leave us focused on the short side. But for now, the idea is to remain patient and wait for our pitch.

As always, the idea is to trade what we see and not what we think. We may be leaning towards the short side, but if conditions change we must be fluid enough to go with the flow.

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.