The indices continued to form a trading range on the 60-minute time frame into Monday morning following an initial reaction to support last Wednesday. This slower path was to be expected given the momentum on the selloff as well as apprehension from recent economic data and the advent of the current earning's season. What is not yet clear, however, is whether or not the market will be able to establish enough of a change in momentum to favor a stronger correction off this support or whether the upside is going to remain weaker and give way to further selling as the week progresses. As things stand now, while the market did post gains on Monday, the upside is slower than the prior selling on the 15-minute time frame and was established on significantly lighter volume. Both of these characteristics are bearish in nature.

Monday's session ended with a gain of 171.85 points in the Dow Jones Industrial Average ($DJI). This was the equivalent of a 1.4% increase. The index closed at 12,778.2 with International Business Machs. (IBM), whose earnings come out on Thursday, leading the bulls. It closed higher by 5.4%, while Hewlett-Packard Co. (HPQ) also assisted the Dow, gaining 2.5% on the session. Merck & Co. (MRK), on the other hand, slid lower after a disappointing cholesterol drug study. It fell 1.3%. In the other indices the S&P 500 ($SPX) climbed 15.23 points, or 1.1%, to close at 1,416.25, while the Nasdaq Composite ($COMPX) rose 38.36 points, or 1.6%, and closed at 2,478.30.



From a technical standpoint, despite the solid price increases in the indices, the market was once again very choppy. I found it rather difficult to locate the higher probability setups that I favor and instead had to make do with a lot which were rather mediocre. A substantial portion of Monday's gains were established at the open when the market gapped sharply higher into price resistance from Friday's session. Without strong momentum from top index players, it was very difficult for the market to hold onto and hug the resistance. Instead it gave way to the pressure almost immediately and began to close the morning's gap.

While the indices did not quite make it back into Friday's closing prices, the market did fall into the highs of the closing move on Friday. This support zone hit at the same time as the 15-minute 20-period simple moving average intraday in the S&P 500 and Nasdaq Composite after about 15-20 minutes of selling. That support held well and the market again began to climb as the morning wore on. The upside retested Friday's highs around 11-11:15 am ET. This resistance held once again and a pullback of approximately equal momentum as the prior rally got under way.



The market fell gradually until coming to rest upon the 15-minute 20 sma for the second time on the day. This level hit around 12:30 pm ET and the market did not show any immediate reaction other than to stall the price decline. By the time the 13:00 ET correction period hit, however, the upside was beginning to pick up on the 1 minute time frame and, after a bit of congestion along the 5-minute 20 sma, the bulls regained control.

The market continued its afternoon rally right into the closing bell, holding the 5-minute 20 sma throughout the uphill climb. The momentum was never able to sustain a strong pace, but there were still some rapid scalp moves on the 5-minute charts off the 20 sma support each time it hit. The market managed to establish new intraday highs in the final two hours of trading, but never quite broke through the near-term resistance levels. The 15-minute 200 sma held, as did the highs from Friday on both the S&P 500 and Dow Jones Ind. Ave. The Nasdaq did break Friday's highs, but found resistance at Thursday's closing prices when it filled that gap. The result was that the market held the afternoon highs for the final 15 minutes of trading. This resistance continued to hold past the closing bell and the market corrected off those highs in afterhours trading.

Heading into Tuesday's session, this continues to support a range on the 60-minute time frame and leaves me waiting for more data for larger time frame positions while playing on the smaller intraday time frames in the interim.



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.