Stocks traded slightly higher last Friday morning, but afternoon weakness caused the major indices to close moderately lower. Both the S&P 500 and Nasdaq Composite lost 0.5%. The Dow Jones Industrial Average fell 0.4%, the small-cap Russell 2000 slid 0.7% and the S&P Midcap 400 dropped 0.2%. Each of the major indices closed near their intraday lows, but within their respective ranges of the previous day.

Turnover dropped off sharply after the previous day's surge. Total volume in the NYSE declined by 38%, while volume in the Nasdaq was 40% lower than the previous day's level. Market internals were negative, but not by a wide margin. In both exchanges, declining volume exceeded advancing volume by a margin of just under 2 to 1.

One sector that has been showing relative strength over the past several weeks is the Real Estate Index ($DJUSRE). Since the S&P 500 bounced off support of its 200-day moving average on May 24, the index has lost 0.5%, but the iShares DJ U.S. Real Estate Index Trust (IYR) actually gained 5.2% during the same period. Looking at a more recent time frame, the Real Estate sector has been maintaining its relative strength as well. On June 2, the S&P 500 ran out of gas from its retracement that began on May 24 and has fallen 2.8% since then. However, IYR has held firm and is unchanged since June 2. The iShares Cohen & Steers Realty Majors Trust (ICF) has shown even more relative strength by gaining 0.5% over the past week. To help illustrate this bullish divergence, take a look at the chart below that compares the percentage price changes of the S&P 500 SPDR (SPY) and ICF since May 24:

Looking at the daily chart of ICF by itself, you can see the potential buy point is over the horizontal price resistance over the $84 area. Notice also how ICF attempted to break out on June 5, but failed and closed back down in its prior trading range. Failed breakouts such as this are common when an ETF has relative strength, but is fighting the trend of a weak broad market:

Because the overall market remains in a firm downtrend and has not yet shown any clear signs of forming a bottom, we do NOT advocate taking a long position in ICF at this point. Although it has relative strength, even the strongest stocks and ETFs will eventually give way to the broad market direction if the trend remains long enough. However, the reason we point out the Real Estate sector is because it will likely be one of the biggest gainers when the market finally does find support and bounces. Remember that the stocks and ETFs that don't drop when the broad market does are the first to breakout higher when the market goes up. Therefore, keep ICF and the other Real Estate ETFs on your shopping list of potential buys.

In terms of the "big picture," each of the major indices except the Dow Jones Industrial Average are hanging out just below their 200-day moving averages. The Dow is fractionally above its 200-MA, although it probed below it intraday on June 8. As we have mentioned on numerous occasions, the 200-day moving average is closely regarded by institutions as a barometer of the market's long-term trend. Therefore, the longer the indices stay below their 200-MAs, the more likely we are to see another wave of institutional distribution. However, with the exception of the Nasdaq, none of the indices are below their 200-day MAs by a wide margin and could easily snap back above them. Despite the broad market's losses last Friday, don't forget that the previous session was a very high volume reversal attempt. Although we are not yet seeing enough confirmation to enter new long positions, we are wary of entering new short positions. Be on the lookout for potential upside follow-through to the June 8 reversal day, but don't "jump the gun."

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.