For the second consecutive day, stocks closed lower on higher trade. The tech-rich Nasdaq led the decline, as it posted a loss of 0.8%. The S&P 500 (NYSEARCA:SPY) and the small-cap Russell 2000 (NYSEARCA:IWM) both fell 0.6%, while the Dow Jones Industrial Average (NYSEARCA:DIA) slid 0.5%. Like the previous day, the S&P MidCap 400 dropped 0.4%.
Market internals were bearish on Thursday. Volume jumped by 24.8% on the Nasdaq and 15% on the NYSE. Declining volume was fractionally higher than advancing volume on the Nasdaq, but on the NYSE declining volume outpaced advancing volume by a factor of 1.9 to 1. Yesterday’s burst in volume points to selling amongst mutual funds, hedge funds, banks, and other institutions. on both exchanges.
Yesterday, on a pickup in volume, the Direxion Semiconductor Bear 3x ETF (NYSEARCA:SOXS) formed a reversal candle, as it undercut its 20-day EMA and 50-day MA, but eventually closed near session highs. Reversal candles serve to shake out the “weak hands” in a trade and they sweep poorly positioned stops. Now that a shakeout has occurred, SOXS offers a potential buying opportunity above the four-day high of $35.42. As such, we are placing SOXS on today’s watchlist for potential trade entry. Regular subscribers to The Wagner Daily should note our specific entry, stop, and target prices for this setup shown below:
Since gapping below its 200-day MA on April 9th, the S&P Select Energy SPDR Fund (NYSEARCA:XLE) has been consolidating below this key mark and has formed a bearish pennant like formation. A volume-fueled move below the three-day low of $68.81 could provide a short entry trigger for XLE. We will be monitoring XLE closely for a possible short entry:
The market appears “heavy” and is giving signs that we may be headed lower in the near-term. Yesterday’s big volume and the fact that the Nasdaq closed near session lows does not bode well for the market’s overall health. However, we are still at major support of the 50-day MA on both the S&P and the Nasdaq. As such, we must be mindful that reversals often occur with an undercut of such key support levels. Further, we are still in a longer term bull market despite the recent selling pressure.