A continued lack of institutional trading activity led to a choppy and erratic session that concluded with small losses across the board. After drifting lower throughout the morning, the major indices briefly rallied into positive territory in the afternoon, but selling in the final hour pushed stocks back into the red. Both the S&P 500 and Nasdaq Composite lost 0.2%, while the Dow Jones Industrial Average slipped 0.1%. The small-cap Russell 2000 and S&P Midcap 400 indices each fell 0.4%. Most of the major market indexes finished near the middle of their intraday ranges.

Turnover was mixed, but remained well below average levels. Total volume in the NYSE declined by 6%, while volume in the Nasdaq was 2% higher than the previous day's level. Despite having posted a bullish "accumulation day" the previous session, yesterday's higher volume caused the Nasdaq to register a bearish "distribution day." But considering that volume levels remained well below average, it's inaccurate to say that heavy institutional selling was present. Market internals were negative in both exchanges, but not by a wide margin. In the NYSE, declining volume exceeded advancing volume by a ratio of just under 3 to 2. The Nasdaq was negative by 1.8 to 1.

On a technical level, yesterday's action was rather uneventful for the major indices. Both the S&P and Nasdaq had "inside days," meaning the range from their intraday lows to highs were completely contained within their respective ranges of the previous day. When in a steady trend, "inside days" often lead to a continuation of the trend, but they are rather meaningless when an index is trapped in a choppy, sideways range. Nevertheless, the Nasdaq tried and failed to move back above resistance of its 20-day MA for the second straight day. If it fails to do so within the next day or two, the Nasdaq will likely roll over to break support of its 50-day MA that it bounced off of on December 26.

The Retail Index ($RLX), which we pointed out as a failed breakout and potential short, may be setting up to provide ideal short entries in the Retail ETFs. It bounced back above its 50-day MA on December 27, but ran into resistance of its 20-day MA. The index dropped to close yesterday right at its 50-day MA. A break below yesterday's low should send the $RLX to a breakdown below its recent range. As for the other industry sectors, we'll take an updated look at which ones are showing the best and worst chart patterns after volume returns to the markets. Hopefully, that should happen after New Year's Day.

NOTE: The U.S. stock markets will be closed on Monday, January 1, in observance of New Year's Day. The Wagner Daily will not be published that day, but regular publication will resume on Tuesday. We thank all of you for your support and enthusiasm in 2006. Be assured that we will continue working hard to bring you top notch analysis and commentary in 2007!

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.