The market had a bit of a tough time trying to make up its mind on Monday. Thanks to strength in some key technology stocks, the Nasdaq managed to outperform the rest of the market throughout the day. The S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) both began to fall as soon as the opening bell tolled, but the Nasdaq Composite ($COMPX) actually climbed somewhat for the first 15-20 minutes of the day and broke to new highs on the month. While it also gave in to a bit of selling heading into 10:00 ET, the selling was not enough to close the gap and the 15-minute 20 simple moving average held as support.



The market began to head higher following 10:00 ET. At first there was a great deal of congestion on the 1 minute time frame, but when the 10:45 ET correction period hit, the market shot higher. I did not notice anything in terms of news at this time, but the market reaction was very similar to one driven by news. The S&P 500 and Dow both returned to the zone of Friday's highs, while the Nasdaq cleared the resistance very well and confirmed that 60-minute range breakout we had been watching for heading into the day. Unfortunately for the bulls, the S&Ps and Dow were unable to mimic this breakout. After hitting the highs the market turned around immediately.



The pullback off the highs was extremely gradual to begin with due to the sharp rally into the highs in the first place. I was initially watching for a slightly higher high to slow the momentum, but the market held the zone of those highs even though it did retest them shortly after 10:15 ET. When the market didn't attempt a new high almost right away though, I began to change my focus towards the short side. I took a scratch on my initial attempt around 10:55 ET, but caught it perfectly the second time around at 12:11 ET. By this point the Nasdaq and S&Ps were hugging the 5-minute 20 simple moving average support and volume was drying up on the buying. This meant that even though the prices were heading higher in the Nasdaq at least, there was no conviction to the move.

Once the moving average support broke the sellers began to show their heads. They were a bit hesitant at first, but the momentum intraday on the downside increased a great deal shortly after 13:00 ET. Support hit initially at the morning lows in the Nasdaq Composite just prior to 14:00 ET. A bear flag on the 5 minute time frame followed and broke to a lower low heading into 14:30 ET. This move took the S&Ps into price support from last Thursday's lows. Since this breakdown did not last as long as the one which preceded it, the move began to turn the indices over and create a momentum shift on the 15 minute time frame. Another bear flag tried into 15:00 ET, but this time the lows was even less than before and could not break at all in the Nasdaq. The rounding off at the support allowed the market to hold the zone of the lows into the closing bell, although they dd give way again in the afterhours session until around 18:00-19:00 ET when the slower afterhours downtrend broke higher.



When the closing bell sounded the Dow was down 61.13 points. It closed at 13,759.1 with losses in 22 of its 30 stocks. The financials led the decline, while MSFT helped moderate the selling thanks to its 1.5% gain. The S&P 500 lost 8.02 points on Tuesday. It closed at 1,517.73. The Nasdaq Composite lost 3.27 points. It ended the session at 2,667.95. Since the selling increased on Monday within the range, it seems likely that the range will hold for a few more days at least, but I suspect that we will see some upside spikes within the range to regulate the selling and uphold the current bias for a continuation pattern coming out of the trading range. The 20-day simple moving average will be support.

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.