Good morning! Without a strong bias heading into the new trading week, the market had a tough time deciding just what to do for most of the day on Monday. The session began with a pretty flat open and was followed by selling as the indices continued to correct from Friday afternoon's 15:30 ET pivot highs. The SP500 and Dow Jones Ind. Ave. showed the most relative weakness and the pace of the selling was much stronger than in the NASDAQ. Once again, this was partly due to the fact that the NASDAQ hit a larger 15 minute support level first. In this case it was the 20 sma, while the other two didn't have much support until Friday's lows, hence giving them more room to move.

The strong price support had me looking for a correction out of the 10:15 ET reversal period. The fact that it came into 2 minute equal move support on an intraday breakdown on the smaller time frames also helped, as did a slight increase in volume on that time frame. The NASDAQ held support from the prior afternoon very well and the SP500 formed a tiny 2B on the 1-2 minute charts while the Dow and NASDAQ both formed true double bottoms on that small intraday time frame to trigger a pivot. This brought the market first into the 5 minute 20 sma resistance, where it formed a continuation into the SP500's 5 minute 200 sma and a second test of morning highs.

The market held support and resistance levels extremely well on Monday morning and the weaker SP500 and Dow both reacted to the late morning resistance that hit at the 11:00 ET reversal period with a retracement of about 50% the prior upside move. This took them right back into the 5 minute 20 sma, which also hit and held in the NASDAQ. The pullback overall was more gradual in that index, however, and it formed a 5 minute Cup with Handle going into the 12:00 ET reversal period with a continuation about 15 minutes later that took it very quickly to new intraday highs.

I was unfortunate in choosing that time to go ahead and take a late lunch break, but the follow through was very nice on this 5 minute setup. Resistance hit initially at the prior afternoon highs in the SP500 and Dow before forming a small 2 minute Bull Flag just after 13:00 ET. This took the indices into highs a bit further back on the 15 minute charts heading into the 14:00 ET reversal period. Since the pace was beginning to turn over on the smaller intraday time frames and the prior 2 minute Bull Flag was very small compared to the prior rally, it seemed likely that these 15 minute highs would hold for the remainder of the day. Given the pace of the 15 minute upside move as a whole, however, a strong drop was not likely. I did follow a higher risk Avalanche going into the last half hour of the day when the base along the 20 sma on the 5 minute charts gave way. Nevertheless, the follow through overall was very mild since the NASDAQ's 15 minute 20 sma was close and the NQ was only able to move about 4 points before hitting it.

Monday's session still leaves us with the potential for a 30-60 minute Cup with Handle like I mentioned yesterday. We need a longer base at Monday's highs though. Ideally it would base into the 30 and 60 minute 20 sma support with volume remaining on the light side, like we saw Monday afternoon. It would probably take another half a day or so in order to be lower risk. This would mean a range with the possibility of a slight downside move in the morning.

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, INFY broke down on Monday and hit initial support at the 100 day moving average zone. I am looking for about $65 over the next two weeks. The 50 day sma is resistance. WNC is no longer of interest.

Economic Reports and Events
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. 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.