There are a few key sectors that remain above their 50-day moving averages. How these sectors react over the next two weeks should provide us with more clues as to the market's next move. Healthcare ETF ($XLV) has held up well as of late, but the recent downtrend line breakout was on very light volume with Thursday's action closing below the 50-day MA on a pick up in volume:



A break of Thursday's low in $XLV could put the uptrend under pressure, especially if the break undercuts the lows at $57.

After a strong rally in 2013 and a recent move to new highs, BasicMaterials ETF ($XLB) broke out on weak price and volume action. Thursday's heavy volume selloff creatd a false breakout, much like the chart of the S&P 500. False breakouts can be bullish if the price action recovers fairly quickly (within 3 - 5 days). However, if the action sits at the lows and is unable to bounce then the pattern may need more time to develop or simply rollover.



Despite the day's losses, there was a bit of buying interest yesterday afternoon ,since the averages did not close at the lows of the day. As such, the major averages may still have a short-term rally or two left in the tank, and that is why we must be patient on the short side. Clear-cut short setups will eventually develop when the S&P 500 and Dow Jones break the 50-day MA.

Such a break down would also force the timing model back into sell mode. Although the model is currently on neutral, it is a very weak neutral signal, as market conditions are not improving.

The plan in the short-term is to remain patient and wait for new short setups to emerge. The market rally may still have some fight left, so while it is fine to short, one should be cautious and avoid doing too much until the S&P 500 cracks the 50-day moving average.

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.