Heading into Tuesday we were looking for a downtrend day in the market. I had hoped for a little upside in the morning to allow for a stronger trend, but unfortunately the market actually gapped a good deal lower into the open instead. This took out a lot of the downside potential it had heading into the session. The gap brought the Nasdaq Composite ($COMPX) back into what had been price resistance just over a week ago on November 26. Since it had broken higher last Wednesday, however, this resistance level became a very strong support level. It also was the zone of Wednesday's lows.

The size of the gap, coupled with the larger support on the daily charts, led the market to hold the gap prices to begin with and it turned higher throughout a large portion of the morning. Resistance hit after three waves of buying on the 5-minute time frame as the indices closed their gap zones and came into resistance at the 15-minute 20 simple period moving average zone. The volume had declined somewhat on the upside move, particularly the last segment of it, but it was not enough to create strong selling pressure. The 5-minute 20 sma zone held and the indices returned for a second test of the morning highs before again trying to pull lower into noon.



While the pullback off highs did take place on a larger scale this second time around on the 5-minute time frame, the momentum was still insignificant compared to the rally and the pullback into noon literally held the "noon", or 12:00 ET, lows as that correction period hit. Another ascent on the 15-minute followed, taking the market higher in what had now become a 15-minute trading range. The pace of this buying was much weaker in the Nasdaq than on the initial move off the morning lows and this rounding off at the intraday highs created more of a bearish bias in that index into the second half of the session.



The momentum in the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) did not slow on their second upside moves of the day on the 15-minute time frame. Instead they were nearly identical. This allowed for equal move resistance to hold as their gap zones closed more securely into the 13:00 ET correction period. As that strong afternoon correction zone hit, not only did the S&Ps and Dow pull lower once more, but the Nasdaq broke its gradual upside trend channel to trigger a solid short pattern on the 5-minute time frame, taking it back to the noon lows over the course of the following half hour.



The 13:30 ET area held as support hit and all three indices formed 5-minute Avalanche setups into the 14:00 ET correction period. This took the S&Ps and Dow back to their own prior lows from noon. The momentum on the selling was not strong enough to create a great continuation pattern lower into the close, but the third upside move of the day on the 15-minute time frame was more gradual than the previous selloff and earlier channel break levels on the 5-minute time frame served as resistance into 15:00 ET. This resistance led to a third 15-minute breakdown into the close, resulting in a 65.84 point loss in the Dow, a 9.63 point loss in the S&Ps, and a 17.30 point drop in the Nasdaq. The Dow closed at 13,248, while the S&Ps closed at 1,462, and the Nasdaq ended the session at 2,619. I am expecting the congestion from Tuesday to break lower into Wednesday. The base on the 60-minute time frame is very favorable for such a move into about 1450 in the S&P 500 ($SPX).

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.