Stocks chopped around throughout the first half of yesterday's session, but a late-day sell-off caused the major indices to pull back substantially. The S&P 500 gave up an intraday gain of 0.7% to finish lower by the same percentage. The Nasdaq Composite also lost 0.7%, though it only showed a gain of 0.3% at its peak. The Dow Jones Industrial Average was lower by 0.9%. The S&P Midcap 400 only slipped 0.1%, but the small-cap Russell 2000 fell 0.6%. All the major indices finished near their worst levels of the day.

Trading eased across the board for a third straight day. Total volume in the NYSE declined 3% below the previous day's level, as volume in the Nasdaq receded 1%. Declining volume exceeded advancing volume by approximately 2 to 1 in the NYSE. The Nasdaq adv/dec volume ratio was negative by roughly 3 to 1.

As we illustrated a few days ago, the main stock market indexes remain firmly in intermediate-term downtrends, as well as overall short-term downtrends. Because the S&P 500 is still in the middle of its descending trend channel, well below resistance levels, there have been no changes to the overall bias of the market. Your best odds of profitability continue to lie on the short side of the stock market, or at least in the inversely correlated ProShares UltraShort family of ETFs.

Over the past several days, we have pointed out a few potential short sale setups. Yesterday, iShares DJ Transportation (IYT) triggered our short entry. If today's opening gap down holds into the open, we may see the Market Vectors Steel (SLX) trade through our trigger price for short entry as well. On the long side, there is no need to be in a hurry. At the least, we need to see the major indices start to break out above their downtrending channels, as well as their 20 and 50-day moving averages.

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.