The market established a wide trading range in Monday's session after a sharp decline on Friday marked the 20th anniversary of Black Monday when the Dow fell 508 points in a single day. This response was not unexpected since the market had been selling off into Friday's decline and in the past such a move is typically unable to continue with a second strong day of selling. Some continuation early in the morning is not uncommon, however, and the market had sold off a great deal in afterhours trading. Even though the indices opened higher off those premarket lows, they still experienced a fairly strong downside gap to kick off the new week.



The gap in the market took it smack into the upper end of the congestion area from the price range of late August and early September. These upper price levels were also whole number support levels in the DIA and QQQQ, which are the index exchange traded funds for the Dow Jones Industrial Average and the Nasdaq Composite. It was the $134 level in the DIA and $52 level in the QQQQ. The selling into the previous day's close and the gap into Monday morning extended the trend move enough to allow the market to pull back up into the range from Friday.

The morning gap filled very quickly in the indices and that zone served as resistance in both the S&P 500 and the Dow Jones Industrial Average. It hit at the same time as the 5-minute 20 simple moving average as well, providing additional resistance. The Nasdaq Composite, on the other hand, regained its relative strength lead and, while it stalled for a few minutes at its own 5-minute 20 sma, it was not long before it was at new intraday highs and back to testing the price resistance from Friday's mid-day congestion zone. These resistance levels struck with the onset of the 10:15 ET reversal period and selling once again took over. Most of the best short setups in individual stocks took place at this time.



While the mid-morning downside was decent and on the strong side, the rounded lows in the premarket and sharp upside out of the open were more significant; and the market was pushed into a trading range with a second low coming out of the 11:00 ET reversal period. As the market initially moved off the 11:00 lows I was not certain we were going to actually end up holding our range very well without another wave of selling intraday first. The correction began gradually and with declining volume, but the momentum soon began to build and turn over before finally holding at 12:30 ET and again kicking off another wave of buying on the 5-minute time frames. The buying accelerated into 13:00 ET, creating an equal move on the 5-minute time frame which took the Nasdaq into the zone of the prior highs intraday as well.

After hitting resistance, the indices began to round off at the highs, establishing slightly higher highs, but without really breaking the resistance zone. The bulls finally gave way off 13:30 ET highs and fell into the 5-minute 20 sma support with the onset of the 14:00 ET reversal period. At this point the market based along the support zone on declining volume. This creased a strong Avalanche short pattern, which in this case was also an inverted cup-with-handle pattern. The selloff which followed took the market back into the mid-day congestion at 15:00 ET. It again slowed at this support, but it was not until around 15:30 ET that the buyers truly returned once again. This late day buy setup took the indices higher well into the closing bell and then beyond on afterhours trading.



By the closing bell the Dow Jones Industrial Average ($DJI) had gained 44.95 points (+0.3%) and closed at 13,567.0. The S&P 500 rose 5.70 points (+0.4%) anc closed at 1,506.33. The Nasdaq Composite experienced the strongest percentage gain by rising 1.1% (+28.77 points). It closed at 2,753.93. Apple Inc. (AAPL) was once again at the forefront of the gainers list, rising $3.94/share on Monday. Another gainer, Wynn Resorts (WYNN), will remain of upside interest throughout this week and has potential for an upside swingtrade. In the indices themselves, key resistance levels to watch for in the S&P 500 Emini futures contract will be the 1,528 zone. The 1540 level will also be strong resistance. In terms of support, look for the 1497 zone and then 1593.5. The chances are higher now, however, that the market will continue to react somewhat off this support and congest before it decides to either gain momentum or fall through the support and back into the congestion from mid-August.

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.