Choppy trading from Friday afternoon continued into Monday morning as the market continued to hold the daily resistance from mid-October. The market had moved very slightly lower into the open with the S&P 500 and Dow Jones Industrial Average showing weakness over the Nasdaq Composite. At the 9:45 ET correction period the indices pulled something higher off support on slowing momentum and declining volume, setting the market up for a breakdown when the 10:00 ET ISM Manufacturing Index data came out. Business activity dropped to 50.8 in November, down 0.1 from October. This very narrowly indicates expansion, whereas a number under 50 would show contraction. The immediate response to the data was a sharp downside trust, but once the initial reaction waned the buyers returned into 10:15 ET.

The upside throughout the remainder of the morning began quickly in the S&Ps and Dow, but was much choppier in the Nasdaq Composite. When the 10:45 ET correction period hit the buying slowed and although the indices continued to test highs into the early afternoon they were unable to build momentum. Each high was less significant than the prior, creating rounded highs and a momentum reversal pattern which triggered just prior to 13:00 ET. Notice that in addition, the volume declined as the market made its way higher over noon. This meant that while the indices were moving upwards, there was no conviction in the move. This made it easy for the market to drop very quickly once that uptrend channel from the morning broke lower.



The target on the early morning breakdown pattern from the momentum reversal was the morning lows. It took a couple of waves of selling to get there, first into about 13:00 ET and then a second wave beginning at about 13:30 ET and into nearly 14:00 ET. The afternoon decline slowed in momentum as it came into the morning target zone in the S&Ps and Dow, but still hit the level almost perfectly. The market was already turning over off this support when the 14:00 ET correction period finally came around. The 5-minute 20 sma held as resistance, however, and the market retested the lows into 14:30 ET, making slightly lower lows in the Nasdaq and Dow.

The third test came soon after 15:00 ET. This could have created another reversal into the end of the day if the third drop had been more gradual into the lower low than the previous two moves, but instead it flushed quickly. Even though it bounced back, it could not break the range highs since 14:00 ET and the indices closed near the day's lows.



The day ended on Monday with a 57.1 point loss in the Dow, leading to a close at 13,314.6. An 8.72 point decline in the S&P 500 left it closing at 1,472.42. The Nasdaq Composite lost 23.83 points. It ended the regular trading day at 2,637.13. The overall volume had continued to decline since early in the previous week. This is very typical of congestion zone trading and can make it more difficult to sustain intraday moves, which is why the only decent move on the 15-minute time frame lasted only about an hour out of the entire session.

There were not a lot of well-known stocks trending strongly higher on Monday. One of the best was the trend in Hess Corp. (HES), which rose steadily throughout the session. VMEare Inc. (VMW) also had another nice session with a decent mid-day breakout as opposed to the steady move of HES. Another similar breakout took place in Solarfun Power Holdings (SOLF) and this was even more powerful than the move in VMW and has been a favorite of daytraders recently due to the cheap price and wider intraday range. Most of the top gainers, however, established highs earlier in the session and then failed to continue to trend into the afternoon.



The market does not have a strong intraday trend bias into Tuesday. We can easily see a bit of a pop in the morning and then further and stronger downside into the afternoon. This is because the indices have been rounding off at resistance over the last couple of days and the higher high on Friday will make it more difficult for the market to easily break that resistance zone. This is in line with our expectations for a choppier market as the month progresses since it would create overlap on the daily. Any retracement more than 50% of the rally off the lows on the 26th will then make it even more difficult for the market to rally quickly back into the previous weekly highs, although it can still trend slowly into that level should that larger correction off this resistance take place.

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.