Good morning! The market put in a strong downtrend day on Tuesday coming out of the 60 minute range it has had for the past week. After the strong rally mid-day on Monday, I was not expecting such a rapid return back to the lows of the range when I was scanning the night before. The day began, however, with a gap lower though that took it into the 15 minute 200 sma in the SP500 and Dow Jones Ind. Ave. and the 5 minute 200 sma intraday in all three major indices. The rounded highs and the gap turned the pace back over intraday to favor the bears and the market based along the support out of the open.

The market broke lower going into 10:30 ET with the NASDAQ forming the most recognizable short setup. It triggered on the third test of lows coming out of a 5 minute descending triangle where volume had dropped throughout its formation. The selloff went beyond an equal move on the 2 minute intraday charts to form one on the 15 minute charts as compared to the drop off the prior day's highs into the base. That equal move support hit starting at the 10:45 ET reversal period as volume spiked and by the 11:00 ET reversal period the market had begun to pull higher off the lows. Since the pace into them was so strong, however, the correction was much more gradual, hitting the 5 minute 20 sma resistance where it stalled and fell into a longer congestion over noon as it corrected to the morning selloff.

Since the SP500 and Dow both had slightly lower lows at the 12:00 ET reversal period, I was looking for a longer one on the 15 minute charts. The NASDAQ switched spots with the SP500 and Dow by holding the 11:00 ET lows and hence creating a more bearish pattern on the 15 minute chart than the other two going into the afternoon. The breakdown came again at a third test of support in the NASDAQ, this time on the 15 minute charts.

The NASDAQ was able to put in an equal move on the 5 minute charts into 14:15 as compared to the 10:30 ET breakdown while the SP500 and Dow broke to a lesser degree after already having exhausted themselves more with the slightly lower lows at 12:00 ET. When the next correction took place, the SP500 and Dow once again took over after a more gradual move back into the 5 and 15 minute 20 sma zones led to one last selloff out of the 15:00 ET reversal period into the close. This took the Dow into the lows from the 8th as well as 50 and 200 day sma support.

The weekly charts are still looking to correct more off the highs of the past couple of weeks. I am expecting that we see the market pull into its 20 week sma support before we are able to get any strong upside again. On the daily charts that would likely fall at about the 100 day simple moving average and the zone of the prior daily upside breakout.

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. The 50 day sma will serve as resistance.

Economic Reports and Events
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. 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.