The weakness we were looking at over the weekend in the indices began to turn around at 3:00 am ET Monday morning. By the time the opening bell rang the indices had taken back all of the afterhours losses and even gapped very slightly higher. Within a matter of minutes the overall market was back at Friday's highs. These resistance levels stalled the weaker Nasdaq Composite ($COMPX), but the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) had very little difficulty at those prices and pushed well past them within the first 45 minutes of the day. Even a lower-than-expected manufacturing index reading had little impact upon the buyers. The Institute for Supply Management registered an index reading of 52.0% in September, which is the lowest reading in 6 months and is down somewhat from the 52.9% level in August. Anything over 50% indicates expansion, while under 50% indicates contraction in manufacturing.



The indices pushed slightly higher following the ISM data, but began to turn over into 10:15 ET. The Nasdaq was the most bearish on this correction and it even hugged the 5 minute 20 sma to create potential for a breakdown into 11:30 ET, but the S&P 500 and Dow held up very well and the 5 minute 20 simple moving average held up the three indices and eventually led to a break to new intraday highs around 11:30 ET.

This second wave of upside was slightly more gradual than the first. This was particularly true in the Dow, which had posted substantial gains already on the session. The rally lasted into noon when a small base formed before breaking higher again around 12:15 ET and into the 12:30 ET zone. At this point a second larger correction began on the 5 minute time frame. The 5 minute 20 sma once again served as support as volume declined into the 13:00 ET reversal period.



A third wave of buying followed the mid-day base at highs, but once again the momentum declined and the upside was a lot more gradual than each of the prior upside moves from the morning and early afternoon. As the trading channel contracted and overall momentum slowed, the market began to become more choppy. Typically the market turns over following a third wave of buying, but this tends to work the best when the length of the correction time between each wave of buying is comparable from one to the next. When that does not hold true, then a trend can continue with additional flags and continuation patterns.

This is what happened at about 14:30 ET. The S&P 500 and Dow both had three waves of upside already in on the intraday time frame. Nevertheless, the corrections were all of different lengths and another wave of buying followed at 14:30 ET when the market again pulled into the 5 minute 20 sma zone. This time, however, the buying was minimal and the indices turned over well enough to break the 5 minute 20 sma and uptrend in the last hour of the trading day.



Monday's session ended with a gain of 191.92 points (+1.4%) and closed above 14,000 at 14, 087. The S&P 500 rose 20.29 points (+1.3) and closed at 1,547. The Nasdaq Composite rose 39 points and closed at 2,741. The strongest gainer in the Dow was McDonald's Corp. (MCD). It added yet another 1.54 points (2.8%) and closed at $56.01. Other top gainers on Monday included FCX, EEM, MBT, GS, AAPL, GOOG, SHLD, WYNN, and DRYS. Not everything managed to have some decent gains on Monday. Among the losers were WAG (earnings), CVS, AU, MHS, MXIM, GRMN, IDTI, and RVSN.

From a technical point of view there is still room for more upside early this week. As I mentioned yesterday, however, I am leery of further upside past the first half of the week since this earlier move will leave the market more vulnerable to the previous daily highs in the Dow and S&P futures. I am also expecting a bit of a correction early on in the day on Tuesday due to the intraday trend extension.

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.