Things were a bit slow on Monday with narrower trading throughout the session on lighter volume. The largest contributing factor to this is Tuesday upcoming FOMC meeting. The Fed meets Tuesday afternoon and it is expected that they will cut the federal funds rate by 25 basis points. More importantly, the focus will be upon any accompanying comments regarding the potential to further ease rates. It is not likely, however, that they will allude to any upcoming rate changes in this newest report. The U.S.'s economic outlook has been rapidly diminishing and in the overseas market many customers have been yanking their savings from troubled banking enterprises.



Monday's session began with a decent downside gap after the indices rounded off at highs on the 15-minute time frame intraday on Friday, leaving the indices with a bearish bias going into the new week. The indices found themselves heading in different directions following the opening bell. While the Nasdaq soon began to head lower and fell into a downtrend intraday, the Dow Jones Industrial Average ran into 5-minute 200 simple moving average support and previous 15-minute lows support right away with the opening bell. It then fell into a trading range into 10:00 ET before rallying higher to close the morning gap. It is very typical that in the case of a larger-than-average gap, at least one of the indices will close the gap zone. It was the Nasdaq which closed Thursday's upside gap, while the Dow closed it this time as the Nasdaq remained the weaker index.

The 10:15 ET reversal period held very well on Monday and the Dow's gap closed at the same time as this reversal period hit. The Dow turned quickly, pivoting off highs, while the Nasdaq broke lower out of a small 5-minute trading range along the intraday lows. While the S&P 500 had pulled up slightly with the Dow, it held the 5-minute 20 and 200 simple moving averages and soon broke to new intraday lows with the Nasdaq. The Dow faired somewhat better and found support at the morning lows as the market moved into 11:00 ET. The indices popped quickly for a few minutes at that point, but they were not able to break above 5-minute resistance and instead just created a continuation short pattern going into the 11:15 ET reversal period.



A final wave of selling took the market once more to new intraday lows. The decline into 12:00 ET, however, was a lot more gradual in the S&P 500 and particularly in the Dow as compared to earlier in the morning and the change of pace or momentum began to prejudice the market towards a stronger upside resolution to the final morning decline. It did not take the market long to begin to gather momentum and all three indices moved quickly back into the 15-minute 20 simple moving averages.

As resistance hit heading into 13:00 ET, the momentum began to change. A slowdown on upside trading until 13:00 ET resulted in a pullback into 13:0 ET. It lasted through two waves on the 5-minute time frame before heading back higher after 14:00 ET. The market failed to gather eager participants, however, and even a continuation pattern on the upside out of 15:00 ET failed to return any of the three major indices to their morning highs. The market pullback back again as the Nasdaq hit its prior 5-minute highs from around 13:15 ET, but rolled over at the resistance and continued to selloff afterhours.



Monday's session concluded with a loss of 39.10 points in the Dow Jones Ind. Ave. ($DJI to close at 13,403.4. The S&P 500 ($SPX) lost 7.6 points and ended the regular trading day at 1,476.65. The Nasdaq Composite ($COMPX) experienced the strongest percentage decline and fell 20.52 points to close at 2,581.66.

On Tuesday, due to the Fed announcement, I expect to take things pretty slow. Due to an appointment, I will be missing the first hour or so of trading, which, on the day of a Fed announcement, tends to be the best trading period. When it does come out I would advise that you do not keep a lot of level IIs or data streams up and running, since they can quickly become bogged down and begin to post inaccurate quotes. I am still waiting for the day that this is not the case and each year it does seem to get better. Following the announcement itself there are often three swings back and forth on first a 1 minute time frame and then on a 5-minute time frame.

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.