Monday was a very active day of trading in the market with over 1.7 billion shares traded on the New York Stock Exchange and nearly 2.6 billion on the Nasdaq. The indices had opened up higher with a small gap, but after about 30 minutes the selling set in once again to create the lower lows on the daily time frame that we were looking for before turning around once again.

The morning decline was very rapid and flushed hard into the November lows in the Dow Jones Industrial Average. These hit at about 10:30 am ET as the volume spiked to indicate intraday exhaustion. Heading into the day I had expected the reversal to take place at some point mid-day. This was a bit on the early side, but I switched gears nevertheless and began to focus on the upside from 10:30 and throughout the rest of the morning.



The late morning rally was a nice one, quickly taking the indices back into the opening congestion, particularly the hard-hit Nasdaq Composite. Three waves of buying on the 5-minute time frame brought that index back into the morning highs. The Dow and S&Ps did not quite make it all the way, leaving a little more room mid-day for another test of highs. I had shorted the Nasdaq into noon, but ended up playing it only as a scalp into the 5-minute 20-simple moving average as a result of that larger potential for upside in the Dow and S&Ps.

Given the early bounce off the morning lows, the market's momentum did not quite have enough time to turn over to favor the bulls on the larger time frames. This set the stage for another round of selling into the afternoon. I was a bit premature on my second attempt at the highs just prior to 13:00 ET, but was able to catch them again coming out of that reversal period. 13:00 ET and 14:00 ET are typically very good times to play market reversals.



The afternoon breakdown began slowly, gained momentum into 14:00 ET and then as that correction period hit the congestion once again began to set in. The market whipped back and forth for nearly 2 hours, making slightly lower lows on each drop and holding the 5-minute 20 sma as resistance on each bounce. It then shot higher in the final 20 minutes of trading, leading to positive closes in the Dow and S&Ps and nearly positive in the Nasdaq.

The Dow Jones Ind. Ave. ($DJI) gained 27.31 points, or 0.2%, on Monday. It closed at 12,827.5 with Altria Group, Inc. (MO) leading the gainers and closing higher by 3.1%. 21 of its 30 components closed in positive territory. McDonald's Corp. (MCD) was another winner for the index with a 1.7% gain after announcing plans to begin serving cappuccinos and lattes. The S&P 500 ($SPX) rose 4.55 points, or 0.3%, and closed at 1,416.18. The Nasdaq Composite ($COMPX), however, had a much weaker open and morning trading and did not quite make up enough of that lost ground by the end of the day. It lost 5.19 points, or 0.2%, by the closing bell and ended the day at 1,499.46.

As we head into the remainder of the week I am expecting some more corrective action off these levels. It will likely not be anywhere as strong as the selloff, but can create some very nice back and forth moves on the 15- and 30-minute time frames which will make for favorable daytrading conditions. The 20-day simple moving average zone will serve as decent resistance initially on a daily correction.



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.