The new week kicked off with a bit of a roller coaster ride for market participants on Monday. The morning began with a sharp turn lower following earlier weakness into the day. At 2:00 am ET the index futures began to tumble. The downside gained momentum into 3:00 am ET on falling prices overseas, but then stabilized somewhat into the opening bell. A sharp flush lower at 9:30 ET took the market into the zone of Friday's low and strong price support.

Wider-than-average gaps such as this in the overall market have a decent tendency to fill on the morning of the gap and the market made a nice show out of the attempt. Buying hit within minutes of the bell and, although the indices fell into a bit of a range into 10:00 ET, the market popped following the Institute for Supply Management's nonmanufacturing index. The ISM data exceeded expectations, showing a stronger growth in the U.S. economy than had been expected. The ISM index rose from 54.8% in September to 55.8%.



After pulling back some at intraday highs, the market put in a third wave of buying into the 10:45 ET reversal period. The 10:45 ET highs closed the gap zone in the Nasdaq Composite. Although they did not hit Friday's close exactly, it was still enough to serve as strong resistance and the market rolled over.

The reversal was very slow to begin with. The S&P 500 and Dow Jones Ind. Ave. even went on to retest the morning highs just before noon before they were able to turn over better. From about 12:30 ET to 13:00 ET the market based along mid-day lows and then broke lower soon thereafter. The initial break was comparable to testing the water in your shower or bathtub. The bears put their hand in and yanked it out quickly, but when they realized that the the temperature was just right they all dived in and the market began to sell off very sharply into 14:00 ET.



In order to slow the momentum on the selloff, the market pulled higher out of 14:00 ET. The correction only lasted about 15 minutes, but another wave of downside allowed the indices to begin to roll over at the day's lows. A 2B reversal pattern, consisting of a second slightly lower low on declining momentum, brought the S&Ps and Dow off the lows and the Nasdaq had its own ace up its sleeve when it hit Friday's lows for very strong price support.

The reaction off the afternoon support, while anticipated in terms of its likelihood to occur in some form or another, went beyond what I had been expecting and the indices very quickly shot higher off the lows. The 5-minute 20 sma zone stalled the bulls briefly, but a second and even stronger move took place soon after 15:00 ET. The highs hit the upper end of the morning congestion, creating a second correction and then a third wave of buying into 15:00 ET. This last surge brought the market to the upper end of the daily from Friday as well. As these stronger price levels hit, the market again found itself without solid footing and it slipped slightly lower into the close.



I am still leaning towards continued selling with the 20-day sma serving as resistance in the indices. At the closing bell the Dow ($DJI) has lost 51.70 points (-0.4%) and closed at 13,543.4. Citigroup led the decliners in this index and lost 1.83 points, or 4.8%. The rest of the financial sector remained weak as well thanks to a slew of broker downgrades. The S&P 500 ($SPX) lost 7.38 points and closed at 1,502.17, while the Nasdaq Composite ($COMPX) fell 15.20 points and closed at 2795.18.

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.