We have seen a lot of examples lately where the Nasdaq Composite ($COMPX) has been greatly at odds with the rest of the market. Whereas a few months ago the Dow Jones Industrial Average ($DJI) was often the strongest upside mover intraday, recently it has been the Nasdaq Composite that has led the bulls intraday. On Monday this divergence was even more pronounced. The Nasdaq futures trended higher throughout most of the session, while the Dow, S&P 500 and Russell 2k all closed lower. To put it in perspective, the Nasdaq gained 7.05 points on Monday (+0.3%), while the S&P 500 ($SPX) lost 5.01 points (-0.3%) and the Dow lost 22.28 points (-0.2%). The Russell 2000 ($RUT) fell 4.74 points (-0.6%).



This split in the market was apparent right away out of the open. While it is normal for the market to show some differences in terms of one index leading the other, usually they begin to fall in line within the first few minutes of the day. On Monday, however, the Dow gapped lower and immediately continued south, albeit slowly. The Nasdaq, on the other hand, opened lower by only a few ticks and then began to climb. The S&Ps and Dow fell into a low-level trading range while the Nasdaq broke to new 6-year highs. The momentum slowed and turned over into 11:00 ET. At the same time, the S&Ps and Dow broke lower out of their trading ranges after coming into the 5- minute 20 simple moving average resistance.

One of the primary factors contributing to this unusual market activity was the incredibly light volume. Monday was Columbus Day and apparently many market participants assumed that this meant they could take the day off! Sheesh! On the New York Stock Exchange about 851 million shares exchanged hands with decliners outpacing advancers by 2 to 1. On the Nasdaq there were almost 1.5 billion shares traded with decliners coming in at about half of that on the NYSE and outpacing advancers by the narrower margin of 4 to 1.



After the indices began to sell off, the Nasdaq quickly dropped into the previous 5-minute lows while the Dow and S&Ps slid into the zone of the intraday lows from the previous session. The momentum slowed into this support and the indices all began to favor a bullish reversal over noon. Some slightly lower lows on the 5-minute time frames served as traps to new shorts and flushes for weak-handed bulls and by 12:30 ET most of the uncertainty was shaken out and the market began to gain momentum on the upside into the early afternoon. This was most pronounced in the Nasdaq, which had been leading the market, and the least pronounced in the Dow, which crept higher at a slower-than-average pace into 13:30 ET. The earlier congestion from the morning served as resistance and at 13:30 ET the market again began to correct.



Since the Dow and S&Ps experienced a lot of overlap in their move higher into the afternoon, this made them more susceptible to another flush. The whole market pulled back into 14:00 ET, but the Dow and S&Ps broke the prior low by a hair before triggering one of my favorite setups of the day around 14:15 ET. The double bottom in the two weaker indices allowed the market to quickly retake the prior 5-minute highs, but they S&Ps and Dow had a much more difficult time continuing that momentum. The Nasdaq trended incredibly well into the close, but even though the Dow and S&Ps had rounded off very nicely at the intraday lows, they were not able to pick up any momentum of their own.

My bias is that the market can still pick up this momentum into the morning on Tuesday, but the upside is becoming more and more extended and hence more risky in terms of the potential to be flushed lower. The 1570 level will serve as resistance in the ES (S&P 500 EMini), while the next major support level, if the 1560 level breaks, is going to be at about 1552. Either of these zones should lead to a correction off them on a 15-minute time frame or greater.

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.