The major indices followed through on their recent downtrends throughout most of the day, but a reversal in the final ninety minutes of trading reversed most of the losses. The Nasdaq finally showed decent buying interest into the close, erasing its 1.6% intraday loss to close 0.1% higher. The S&P 500 and Dow Jones Industrial Average, both down 1.8% earlier in the afternoon, rallied to close lower by just 0.3% and 0.4% respectively. The small-cap Russell 2000 lost 0.5%, as the S&P Midcap 400 slipped 0.6%. All the main stock market indexes finished in the upper quarter of their intraday ranges, but only the Nasdaq closed above its opening high.

Turnover across the board surged well above average levels for a change. Total volume in the NYSE rose 14% above the previous day's level, while volume in the Nasdaq similarly swelled 19%. In both exchanges, it was the highest volume levels in about a month. The S&P 500's loss on higher volume technically means the index had a bearish "distribution day." However, with volume remaining strong throughout the late day bullish reversal, we're hesitant to label yesterday as one of institutional selling. Further, the Nasdaq actually scored a bullish "accumulation day" by advancing on firmly higher volume.

At its worst level of the day, the S&P 500 was positioned to follow in the footsteps of the Nasdaq by closing at a new 52-week low. Instead, the late-day rally pushed the index back above its prior closing lows from both January and February. The Dow tested support of its February low yesterday, but didn't breach the 52-week low from January 22. Yesterday's test of the February low in the Dow enabled our long position in the UltraShort Dow 30 ProShares (DXD) to hit our original price target as well. With an inverse chart pattern of the Dow, DXD moved right up to its prior high from February 11, then reversed sharply into the close. This is shown on the daily chart of DXD below:



The prior intraday high from February 11 was 59.88. Yesterday's high was 59.89. When we bought DXD on February 28, we told subscribers our price target was 59.85, just a few cents below the February 11 high. As such, we sold DXD into strength yesterday afternoon, netting a 5-point gain (9%) with a hold time of just a few days.

If this were a bull market, the "hammer" candlestick patterns that formed on the daily charts of the major indices would probably lead to further gains in the near-term. But, as you may have noticed, we're in a bear market. In recent months, bullish patterns have fizzled out a majority of the time, so we're hesitant to predict follow-through gains from yesterday's bullish reversal. Even if stocks start to move higher, there is a plethora of overhead resistance levels the major indices must contend with. The 20-day exponential moving averages are the first significant barrier. Conversely, we're now avoiding new short sales in the near-term unless the main stock market indexes fall below yesterday's intraday lows.

Frankly, we think cash is the best position until either one of two scenarios occurs: the major indices close firmly above their 20-day EMAs or they close below yesterday's lows. Remaining positioned in cash until then is a great way to avoid churning your account while the bulls and bears battle it out at pivotal support levels. For the S&P 500, yesterday's low is 1,307 and the 20-day EMA is at 1,353. For the Dow, the levels are 12,032 and 12,420. The Nasdaq Composite's low is 2,221 and the 20-day EMA is at 2,320. We're now "flat and happy" after having locked in a nice gain on the DXD.

Open ETF positions:

Long - (none)
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.