Institutions have been selling the heck out of small cap stocks lately, as the Russell 2000 only managed a two-day bounce off the lows before reversing. There is obviously no appetite for risk right now, as firms continue to rotate into lower beta names.

As shown on the daily chart of the Russell 2000 below, a break below the 1,082 swing low (horizontal support) could put the index in a ton of trouble:



Another key chart to watch to assess market conditions is the Semiconductor ETF ($SMH).

Semiconductor stocks were relatively strong by holding the 50-day moving average (for the most part) while the Nasdaq broke down all through April. But if $SMH cracks below the $44 area in the near-term, where will Nasdaq leadership come from?



The 50-day MA of $SMH is still trending higher, but the 20-day EMA has just crossed below the 50-day MA, indicating the potential for a reversal.

As mentioned yesterday, we are also monitoring $AAPL to see if the recent gap up can hold, as $AAPL accounts for 20% of the Nasdaq 100.

On the stock side we will continue to remain patient and hold off on new entries until conditions improve.

Our internal (long) watchlist has not been impressive the past two weeks, leaving us with little regret in not being long. In a good market, the regret is almost right away when there is hesitation to buy, and that simply isn't the case right now.

As for the short side, we continue to build a list of names that fit the criteria for our broken leader setup.

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.