Trading was very choppy throughout much of Tuesday's session. After continuing to move higher afterhours on Monday, the market ran into price resistance. In the Nasdaq Composite this resistance was the price congestion zone at noon before the indices dropped lower into the early afternoon. The market was unable to push past those highs and at almost exactly midnight the bears returned with a sharp decline in the wee hours of the morning. At 4:00 am ET the indices began to stabilize, but the market bias remained mixed. The rounded lows on Monday's 15-minute charts left a bullish bias in the market that, despite afterhours buying, had yet to play out long enough for any real bearish action to take over.



The bears tried to regain control out of the opening bell, pulling the indices lower for the first 15 minutes of the regular trading day, but the 9:45 ET reversal period held and the market turned higher. The Nasdaq led the upside, nearly closing the morning gap, whereas the S&Ps and Dow could not even push through the 5-minute 20 simple moving average resistance. A second wave of intraday selling followed this resistance and the market fell sharply into 10:15 ET where it rounded off into 10:45 ET, triggering another upside move into 11:00 ET.

For a brief span of time, the bulls were allowed to try their luck once again, but they were forced to deal with a horde of resistance levels. The 5-minute sma was again the first one for the Dow and S&Ps, whereas the Nasdaq moved into its upper channel resistance at the same time. The indices hugged the resistance into about 11:30 ET and then broke to continue higher on a second wave of buying. The Nasdaq once again hit premarket highs and the mid-day congestion from the previous session before turning over, while the S&Ps found resistance at those mid-day lows and the Dow found intraday resistance at the earlier 5-minute highs.



The early afternoon action in the indices was still not too difficult. The mid-day resistance held perfectly and the selloff which followed moved perfectly into support from the 11:15 ET zone and then formed a nice little Avalanche on the 5-minute charts before falling again into the 13:00 ET reversal period. This took the market into the 10:30 ET price zone and a second level of 5-minute support.

After the market reversed at about 13:15 ET and again headed higher, the indecision became magnified. Among the first of the major earnings announcements of the season, Yahoo (YHOO) was set to announce their results after the closing bell. As I pointed out in my free chatroom, while the 5-minute bias remained bearish, the 15-minute charts were still bullish! In the end both of these biases had a chance to play out, although the bulls had to wait until after the closing bell. At about 14:15 ET the bears took over and brought the market back to prior 5-minute lows, but it lacked the interest (as displayed by very little change in volume) to break the support level.

A slightly lower low formed soon after 15:00 ET, but the lower intraday support held. This created a reversal pattern in the indices known as a 2B. I had hoped to see a third slightly lower low to flush things out a bit better, but instead the market rolled over and then popped to the upper end of the trading channel. It then held up along that resistance until after the bell when earnings announcements propelled the indices higher. The Dow and S&Ps returned to their opening price levels and the Nasdaq managed a higher high on the day.



At the time of the closing bell, the Dow Jones Industrial Average was down 71.86 points (-0.5%) after hitting a triple digit loss earlier in the session. The Dow ended the day at 13,912.90. The S&P 500 fell 10.18 points (-0.7%) and closed at 1,538.53. The Nasdaq Composite came in in the middle with a loss of 16.14 points, (-0.6%). It closed at 2,763.9.

A lot of the top winners on Tuesday were under $15/share. Bell Microproducts Inc. (BELM) rose 8.4%, breaking out of a second wave of selling on the daily time frame after stating that on a preliminary basis, Q3 revenue was up about 30% from the prior year. China Precision Steel Inc. (CPSL) rose 9.9% after it showed a 55% revenue growth for fiscal 2007. Lululemon Athletica Inc. (LULU) had a really great daily setup with a strong bear trap after it raised its Q3 same sales growth target to over 30%. Another very strong setup on the daily charts was in Robbins & Myers Inc. (RBN), which had originally triggered on Monday, but then offered a strong continuation play on Tuesday morning thanks to a strong base at highs following the opening gap. The gap itself was caused by earnings for its fiscal Q4 which were nearly double from the prior year.

On the losing side, one of the stronger daily and weekly short setups was on Domino's Pizza (DPZ). It had been stuck in a range since August and fell through the lower end of the range with a gap due to a Q3 net income decline of 55%. A similar setup occurred in Keycorp (KEY), which also broke lower out of a weekly base at lows after its Q3 income fell 33%. Both of these are now open for even further downside as a result.

The intraday momentum is still more bullish because the upside moves within this congestion have been very strong, even though they have been afterhours. The daily charts, however, remain more extended, which still makes it easier for the bears to take hold quickly if the momentum turns over intraday. I think that this week the easiest trading is going to be in individual stocks moving on earnings news while the overall market remains choppy.

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.