Stocks followed up Monday's sell-off with a relatively quiet session of trading that left the major indices with mixed results. The broad market drifted lower throughout the first hour of trading, recovered, then stabilized in a tight, sideways range throughout the rest of the day. The S&P 500 eked out a closing gain of 0.2%, but the rest of the main stock market indexes were moderately lower. The Nasdaq Composite lost 0.1%, the Dow Jones Industrial Average 0.2%, the S&P Midcap 400 0.4%, and the Russell 2000 0.7%. The major indices settled near the middle of their intraday trading ranges.

Turnover was light ahead of today's meeting of the Federal Reserve Board. Total volume in the NYSE declined 14%, while volume in the Nasdaq eased 6%. Volume in both exchanges was below 50-day average levels. Lighter trading during range-bound sessions of consolidation (both bullish and bearish) is common. In the NYSE, advancing volume exceeded declining volume by a margin of just under 3 to 2. The Nasdaq adv/dec volume ratio was fractionally negative.

The Retail Index ($RLX) has been in a wide, choppy range for the past several months, but the sector has recently begun to exhibit substantial relative weakness. While the S&P and Dow are still above support of their May 2009 lows, the Retail HOLDR (RTH) has already fallen to test its May low. If it fails to hold, RTH will break a major area of horizontal price support, as well as its 200-day moving average. The precarious state of RTH is shown on the daily chart below:



Because of the relative weakness it is already exhibiting, RTH should be one of the leading sectors to the downside if the bearishness of the broad market persists in the short to intermediate-term. Those looking for short selling opportunities might consider RTH and/or XRT (another retail ETF), but they're best entered on the first bounce that follows a break of support, rather than selling short the actual breakdown below support. Real Estate also remains a sector with considerable relative weakness (IYR is a popular ETF in the sector).

When stocks follow up a large day of gains by trading near the previous day's highs, on lower volume, and closing near unchanged levels, it is considered to be bullish consolidation that usually leads to a resumption of the uptrend. Conversely, it's bearish when stocks trade near the previous day's lows after a substantial sell-off, on lower volume, and finish nearly flat. The latter is exactly what happened yesterday. Typically, this would hint at the likelihood of another leg down in the coming days. However, today's meeting of the Fed could easily lead to unexpected volatility, as it usually does, especially in the afternoon.

When the Fed announces their latest statement on economic policy, at 2:15 pm ET today, Wall Street will be listening closely for hints at whether or not the Fed intends to raise interest rates in the near future. Though it's unlikely the Fed will make any surprise statements, one should nevertheless be prepared for the knee-jerk reaction and whippy trading that usually follows in the late afternoon session. As per our usual policy, we will focus on managing existing open positions, rather than entering new ones, ahead of today's Fed meeting. We'll keep today's commentary brief, as there's not much to say until we see the market's initial reaction to the Fed meeting.

Open ETF positions:

Long - SRS, MZZ, IBB, UNG, SLV, DBA, INP
Short - (none, but SRS and MZZ are inversely correlated ETFs)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.