After two days of light volume gains, the major averages sold off on higher volume, with the Dow Jones closing below the 50-day MA.

Yesterday's high volume selling produced distribution days in the Dow Jones, Nasdaq Composite, and S&P 500. The volume pattern in the S&P 500 and Nasdaq has been quite bearish as of late, with light volume up days followed by heavier volume down days.

Bearish volume pattern in NASDAQ Composite:



The Dow Jones Industrials Average closed below the 50-day MA on a pick up in volume.



If the Dow Jones fails to bounce within a few days, then the price action could turn ugly and potentially drag the S&P 500 below the 50-day MA as well.

In yesterday's report we mentioned the weekly bear flag pattern that has formed in iShare Biotech ETF ($IBB).

That setup is still valid, but we plan to buy the inversely correlated Proshares UltraShort Biotech ($BIS), rather than selling short $IBB. Subscribing members of The Wagner Daily should note our exact entry, stop, and target prices for this trade setup in today's report.

Along with $BIS, we also like the inverted Direxion Financial Bear 3x ($FAZ) for a long entry. $FAZ has recently cleared the short-term downtrend line after potentially setting a higher swing low last week.

The financial sector has shown relative weakness to the S&P 500 the past two months, with $XLF failing to reclaim the 50-day MA in April and May:



As with $BIS, our preset trade details for the $FAZ setup can be found (for subscribers only) in the "Watchlist" section of today's report.

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.