Yesterday's broad market price action mirrored the previous day's, as stocks opened nearly flat, then trended lower throughout the day. This time, however, the lack of a late-day reversal caused the major indices to finish near their intraday lows. The Nasdaq Composite lost 0.7%, the S&P 500 1.0%, and the Dow Jones Industrial Average 1.2%. The small-cap Russell 2000 fell 1.4%, as the S&P Midcap 400 Index receded 0.9%. Despite another session of losses, all the main stock market indexes held above their previous day's lows. As such, yesterday's session did not change the current technical picture of the broad market.

Not surprisingly, volume dwindled even further ahead of Thursday's Christmas holiday. Total volume in the NYSE declined 12% below the previous day's level, while volume in the Nasdaq ticked 19% lower. It was the lightest full day of trading volume in the Nasdaq so far this year, and one of the slowest in the NYSE as well. With today's Christmas Eve session closing three hours early, we should expect trading to be lethargic as well. Although the major indices lost an average of 1% yesterday, market internals were not that bad. In both the NYSE and Nasdaq, declining volume exceeded advancing volume by a margin of just over 2 to 1.

Several subscribers e-mailed us yesterday morning, inquiring about the dramatically lower opening prices in many of the ProShares Ultra and UltraShort ETFs. UltraShort S&P 500 ProShares (SDS), for example, opened 13.8% (12 points) below the previous day's closing price, even though the S&P 500 Index started the day only 0.3% higher. For those who were not aware, and perhaps thought there was something wrong with their computer, this discrepancy was simply attributed to the quarterly distribution of substantial dividends, as well as short and long-term capital gains on the ProShares ETFs. Since SDS traded "ex-dividend" on December 23, its price was automatically adjusted to be 11.48 points lower. This means SDS technically only opened half a point below the previous day's closing price. The remaining 11.48 points will be distributed to shareholder accounts on December 30. Whenever a dividend distribution occurs in an ETF position we're holding, we simply lower our stop and target prices by the exact amount of the payout to compensate for the price adjustment.

The ProShares ETFs are not unique with their dividend distributions, as hundreds of various types of ETFs also pay dividends on a regular basis. However, because of the complex nature of the composition of the inversely correlated Short and UltraShort ETFs, short and long-term capital gain distributions can be shockingly large. Although the $11.48 per share distribution of SDS was humongous, consider that UltraShort Semiconductors ProShares (SSG), as well as a few others, had a short-term capital gain distribution of more than 40 points! To prevent having these ETFs unintentionally trigger your stop prices due to quarterly dividend distributions, we suggest being aware of the anticipated "ex-dividend" dates, then adjusting your protective stop prices accordingly. A complete list of past distribution dates for all the ProShares ETFs can be found by clicking here.

Overall, yesterday's broad market action was dull and uneventful. Since the week of Christmas is traditionally the slowest of the year, the lethargy was to be expected. The December 12 "swing lows" of the major indices are still important technical support levels, but we would not place much value on a test, or even a break, of those lows that might occur today. Unfortunately, we may not know the real direction of the market's next move until traders return to their desks after the New Year's Day holiday. So, rather than gluing yourself to the computer screen this morning, you may just as well set your stops and spend the day with your friends and family (or doing last-minute shopping). We at Morpheus Trading Group sincerely wish you a Merry Christmas, Happy Hanukkah, and Happy Kwanzaa. See you on Friday!

Open ETF positions:

Long - INP, FXI
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.