Stocks gapped down at the open, recovered during the morning session but then sold off into the close. Trade was light. All five major indices closed in the red. The selling was fairly even across the board with higher beta issues feeling slightly more pressure. The small-cap Russell 2000 lost 1.4% while the S&P MidCap 400 faded 1.2%. Both the Nasdaq and the S&P 500 closed lower by 1.1%. The Dow Jones Industrial Average ended the day off by 1.0%.
For the second time in as many days, market internals ended mixed. Volume increased on the NYSE fractionally but decreased on the Nasdaq by 3.6%. However declining volume overpowered advancing volume on the NYSE by a ratio of 7.2 to 1 and on the Nasdaq by a factor of 2.6 to 1.
Since setting a new swing high on May 9th, the Direxion Daily Semiconductor 3x Bear ETF (NYSEARCA:SOXS) has been riding support along its 10-day moving average. Yesterday, on a pickup in volume, SOXS recovered to close near session highs. A move above the three-day high of $41.36 could present a buying opportunity in this ETF. We are placing SOXS on today’s Watchlist, and trade details (specific entry, stop, and target prices) are posted for subscribers in that segment of the newsletter.
Our watchlist candidate, XRT, triggered yesterday but since it was hard to borrow, we cancelled the setup. With the exception of the small-cap Russell 2000, the major indices are now all perched just above key support. The Russell lost support of its five-day low yesterday and appears to be headed lower. Keep an eye on the inversely correlated TZA as a potential long candidate above yesterday’s high of $20.87. If the market cannot recover quickly off of the current levels, a big round of selling could ensue.