The trading range that we've been dealing with over the past four days gave in on Tuesday to the bearish pressure I discussed in yesterday's column. While the indices had closed higher, the upside momentum had been very gradual into Monday's closing bell as compared to prior price declines and the volume on that buying was also on the lighter side as the indices hugged the 15 minute 20 period simple moving average throughout the second half of the trading day.



The correction off Monday's highs began in afterhours trading and resulted in a large downside gap in the indices into Tuesday's opening bell. Early in the day the Commerce's Department released of the December retail sales data, which fell 0.4%. Excluding both autos and gasoline, sales fell 0.2%. This was the first decline in sales in 6 months and was more than economists had been anticipating. It deepened fears that the U.S. economy has now fallen into a recession. Stock and index prices tumbled as a result, although bonds received a boost from the data. Meanwhile, the Labor Department announced that producer prices declined 0.1% in December, while core producer prices (which exclude food and energy) climbed 0.2%.



Gap and pivot levels from the previous two sessions held the market in a vice out of the open following the premarket data. I found almost no buy setups or strong upside momentum gainers in my scanning out of the open, making continued downside the path of least resistance. The momentum resulting from the gap and the break in the 60 minute range also supported more downside intraday. Nevertheless, many market participants sat on the sidelines out of the open, waiting to see how the support/resistance zone would play out. The market was unable to get off the ground, however, and at about 10:00 am ET the bears had caught their breath and were ready for another move.



While the selling out of 10:00 am ET was steady, this would be the only move of the day to display such conviction on the 15 minute time frame. The indices continued lower into the 10:45 ET correction period, at which time they corrected for the second time intraday. The 5 minute 20 sma held as resistance, but the momentum had shifted enough to make it more difficult to break sharply to new lows. Without any strong momentum one way or the other, the downtrend continued as a series of slightly lower lows and even a number of slightly lower highs throughout the remainder of the day.

The market did spike quickly higher into the final 30 minutes of trading to flush out weak hands and offer a glimmer of hope to the bulls, but the larger time frame pressure won out in the end and the session ended near the lows of the day. The Dow Jones Ind. Ave. ($DJI) fell 277.04 points, or 2.2%, and closed at 12, 501.1. The S&P 500 ($SPX) lost 35.30 points, or 2.5%, and closed at 1,380.95. The Nasdaq Composite ($COMPX) dropped 60.71 points, or 2.4%. It closed at 2,417.59. This selling continued sharply in afterhours trading and the market is well on its way to the equal move on the weekly time frame. This is a comparison of the Oct-Nov drop to the one which began late last month.

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.