What a difference one day can make. The Nasdaq Composite logged a bullish "accumulation day" and showed relative strength by cruising 1.3% higher last Thursday, but swiftly plunged 2.3% on even higher volume the following day. After trending steadily lower throughout last Friday's session, the S&P 500 and Dow Jones Industrial Average similarly sustained losses of 1.9% and 1.8% respectively. The small-cap Russell 2000 fell 1.6% and the S&P Midcap 400 declined 1.8%. All the main stock market indexes finished near their intraday lows. For the week, the Dow Jones Industrial Average tumbled 3.8%, the S&P 500 3.1%, and the Nasdaq Composite 2.0%. Each of the major indices also closed at its worst level of the week.

Trading surged higher across the board, causing the S&P 500 and Nasdaq Composite to follow up the previous session's "accumulation day" with a bearish "distribution day." In the NYSE, total volume zoomed 36% above the previous day's level. Turnover in the Nasdaq ticked 8% higher. Notably, volume in both the NYSE and Nasdaq spiked to its highest levels since March 20. The quarterly "quadruple witching" options expiration day undoubtedly played a role in the volume surge, but it's still quite negative that such sharply higher turnover matched the ugly losses. Nasty market internals accompanied the bearishness. In the NYSE, declining volume exceeded advancing volume by a margin of approximately 7 to 1. The Nasdaq adv/dec volume ratio was similarly negative by 6 to 1.

It's quite unusual for an "accumulation day" to immediately be followed by a "distribution day" marked by institutional selling. However, recall our warning in the June 20 issue of The Wagner Daily. That morning, we said of the preceding "accumulation day" that, "Despite its gain of more than 1%, the Nasdaq showed market internals that were not overly strong. Advancing volume in the exchange exceeded declining volume by a margin of just over 5 to 2. Generally, we like to see strong percentage gains backed by an adv/dec volume ratio of at least 3 to 1. A closer look "under the hood" shows yesterday's buying in the Nasdaq was concentrated to just a small arena of stocks that racked sizeable gains. The unimpressive breadth negatively countered the bullishness of yesterday's Nasdaq gain." This small detail was the one reason we were not totally shocked by the extent of last Friday's sell-off. Overly negative market internals that closed the week told us last Friday's session was more bearish than Thursday's session was bullish.

Many international ETFs showed relative weakness to the U.S. markets. In last Friday's commentary, we pointed out the bearish setup in iShares Latin America (ILF), which had recently fallen below its 50-day moving average and was having trouble moving back above it. As anticipated, ILF resumed its new intermediate-term downtrend by breaking down below its hourly uptrend line, and slicing through support of its prior low from June 11. Last week's bearish momentum is interesting because ILF had recently been one of the strongest international ETFs. If ILF is breaking down, it's likely that other international ETFs will be following suit. Market Vectors Russia (RSX) was also not immune to last Friday's bearishness, though it closed less than thirty cents below our June 13 entry price. The breakdown to a new June low in ILF is shown on the daily chart below:



Last week, a new ETF began trading that may be interesting to those of you who are anticipating a substantial correction in the price of crude oil. The PowerShares Crude Oil Double Short (DTO) is designed to move in the opposite direction of the price of the crude oil commodity, and at a leveraged ratio of double the percentage change of the crude oil futures contract. For example, DTO rallied 6.6% when the crude oil continuous contract (@QM) dropped 3.3% on June 19. Buying DTO is similar to selling short the U.S. Oil Fund (USO), but has the added benefit of enabling one to take a bearish position in a non-marginable, cash account such as an IRA or 401k. Buying DTO may also be easier than trying to locate shares of USO to borrow for short selling. It is also more of a pure play on the price of crude oil than ProShares UltraShort Oil and Gas (DUG), which is tagged to the price of individual stocks, not the actual crude oil commodity.

If you're concerned about the higher volatility created by the 2 to 1 leveraged effect of DTO, simply make an adjustment to reduce your position size by fifty percent. Doing so would enable you to have the same risk as carrying a full position of an inversely correlated ETF that is not designed with leverage. With crude oil (and USO) consolidating at its all-time high, in a tight range, note we are not advocating a bearish position right now. Blindly calling a top right here would be rather foolish and risky. Nevertheless, we are simply providing you with an early heads-up of a new ETF that will be in play when crude oil eventually forms a significant topping pattern. We do not yet have any technical signs of such an occurrence, but put DTO on your watchlist in the meantime.

With many stocks now dropping on sharply higher volume, the main stock market indexes may soon be approaching intermediate-term capitulation (also known as "climax selling"). As expected, the Dow has also fallen to test key support of its March 2008 low. If the index finds support here and begins to move higher, a double bottom will have formed. Realize, however, that the Dow could first probe below the ultimate low from March 2008, shaking out the "weak hands," before finding support. The market has still not given us a good reason to begin buying, but that time may be coming soon.

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.