Good morning! The market did a nice job of holding the daily range on Friday as anticipated. The day began with a downside gap, however, creating weakness intraday out of the open. As we saw on Tuesday and Wednesday of last week, the larger gaps in the indices tend to have a difficult time holding the gap. In a trading range they will most often fill in the afternoon, while they will more often fill in the morning if they occur in the direction of a trend that has been in place intraday for several days. An exception is if the gap occurs early on in a new trend move after a pivot off larger weekly or monthly support. On Friday, the NASDAQ had the more extreme gap and hence saw the least continuation of the downside intraday. The SP500 and Dow Jones Ind. Ave. had more typical gaps and thus had more room to move lower intraday.

The NASDAQ opened just under the prior day's afternoon lows, hence under resistance, on Friday morning, while the SP500 opened under its 5 minute 200 and 20 sma. They held these levels initially and sold off gradually for the first 30 minutes or so. At that point both the SP500 and Dow came into support from the 15:00 breakout the prior day, as well as 15 minute 20 sma support. The NASDAQ hit prior 15 minute lows at about the same time, leading to a slow pivot and correction along intraday lows throughout the remainder of the morning.

The base along support on the 15 minute SP500 and Dow created an Avalanche pattern as volume dropped within the base formation. The trigger was a bit sloppy, setting up as the NASDAQ bounced of its morning highs and the SP500 and Dow hit and held their 5 minute 200 sma resistance. The follow through in the SP500 and Dow Jones was very nice, dropping all the way into its own prior lows from the 10th and putting in an equal move on the 15 minute charts as well. Since the 12:00 ET reversal period was hitting at the same time, I expected a much more significant correction off support going into the afternoon.

The correction began gradually. The support zone held very well, but the market rounded off at them instead of bouncing right away. This created a 5 minute 2B pattern in the NASDAQ since that index put in a slightly lower low. The slower pace into the second mid-day low opened the door for a stronger turn around in the market in the afternoon. The mid-day pivot continued with a shallow Phoenix right out of the 14:00 ET reversal period. The SP500 formed the most textbook pattern since volume dropped off nicely as it hugged the 5 minute 20 sma, but all three rose very nicely from out of the setup.

Since the pace was picking up going into the last two hours of the day, the next setup to watch for was a 5 minute Bull Flag with the 5 minute 20 sma serving as support since that was the resistance level that the market hugged before breaking higher on that time frame. Once again volume dropped off, showing us that there was not any significant selling as the base formed out of 14:30 ET. You can see a 15 minute Phoenix in the form of a Cup with Handle also developed at the same time. The buy pattern triggered at about 15:15 ET and once again the pace picked up, allowing for more than an equal move on the 5 minute charts and taking the market back to price and equal move resistance on the 15 minute charts instead of reacting to the 5 minute resistance levels such as the 200 sma.

Once again there is not a strong directional bias forming intraday on the larger 15-60 minute time frames that I am seeing as we head into the new trading day. The NASDAQ is at some strong support on the 120 min. 200 sma. This gives us room for form a 30-60 minute Cup with Handle, but since we had a strong trend move into Friday's close intraday, I want to see how the market corrects to that move. The Commodity Channel Index (CCI), an overbought/oversold indicator, is pretty neutral at the moment and we are in between stronger daily support and resistance levels, so there is room to move either way, depending on the pace of the morning action on Monday.

Updates: VAR from the 20th $38 around hit new highs the 27th at $40.70 before closing on the day with a base at highs ahead of earnings for swingtraders. For a larger position trade I want the 20 day sma to hold. I am watching HSP for a breakout on the daily and weekly charts, but it can easily take a few weeks to even a few months to develop with the 20 week and 20 month simple moving averages serving as support. QLGC is on my watch list as a longer term short on a break down out of the current weekly low-level base. For swingtrades I am watching INFY and WNC for breakdowns out of these daily ranges.

Economic Reports and Events
Aug. 15: NY Empire State Index for Aug. (8:30 am)
Aug. 16: Building Permits for Jul. (8:30 am), Core CPI for Jul. (8:30 am), CPI for Jul. (8:30 am), Housing Starts for Jul. (8:30 am), Capacity Utilization for Jul. (9:15 am), Industrial Production for Jul. (9:15 am)
Aug 17: Core PPI for Jul. (8:30 am), PPI for Jul (8:30 am)
Aug 18: Initial Claims 08/13 (8:30 am), Leading Indicators for Jul (10:00 am), Philadelphia Fed for Aug (12:00 pm)
Aug 19: -
Aug 22: -
Aug 23: Existing Home Sales for Jul (10:00 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Aug. 15: A (B), MIVA (B), GG (A), KEP (B), LOW (?), PLAB (?); SYY (B)
Aug. 16: ANF (A), AEOS (B), AMAT (4:30 pm ET), BJ (B), DE (B), HPQ (?), HD (B), JCP (B), JWN (?), SPLS (?), EL (B), TJX (B), WMT (B)
Aug 17: BEAS (?), CHRS (B), EDMC (A), HAR (A), HOTT (4:00 pm ET), MDT (A), MW (A), NTAP (A), ROST (?), CRM (A), SNPS (A)
Aug 18: ARO (4:01 pm ET), ADSK (?), BKS (B), BEBE (?), DITC (?), FL (A), GME (B), GPS (A), JDSU (A), LTD (?), MRVL (A), PSS (B), PLCE (B),
Aug 19: ANN (B), CHINA (A)
Aug 22: -
Aug 23: WSM (B), WIND (?)

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.