The market headed lower on Monday as the new trading week kicked off. After strong gains in last week's trade, the market had begun to correct on Friday with some choppy action in a larger range. The indices had managed to climb back to morning highs prior to the close, but that level, which hit on slower momentum than it had earlier in the session, merely served as strong resistance and led to a double top intraday on the 15-minute time frame. This pattern began to follow through immediately out of Monday's opening bell.

A gradual decline with a great deal of overlap in price on the 5- and 15-minute set the tone for the day. Volume was on the light side throughout the session and although the market trended lower well into the afternoon, the bias was not a strong one and each of the downside moves was short-lived with a lot of price retracement in between to indicate a great deal of indecision. The volume reflected this indecision as well since the light volume meant a lack of commitment by either the bulls or the bears.

After breaking through it early on, the 15-minute 20-period simple moving average in the indices held as resistance throughout the day on Monday. It had broken it earlier in all-sessions trading after highs around 6:45 am ET, so even the morning's intraday trading was under that resistance when taking premarket futures trading into account. The market initially hit support from midday to early afternoon levels from Friday around 10:30 am ET, but continued through those prices into noon on slow but steady selling.

A second support level hit around 13:30 ET. This was approximately an equal move on the 15-minute Nasdaq as compared to the initial descent on the day and it was stronger price support from Friday as well. Once again, however, it failed to attract any strong buying and at 14:00 ET the market again rolled over, but the selling did not increase until the last move into the closing bell. The momentum did increase at that time, but it didn't help daytraders by that point and the primary session closed without much fanfare.

The Dow Jones Industrial Average ($DJI) closed at 12,635 on Monday with a loss of 109.03 points, or -0.8%. General Motors (GM) (-4.87%) and JP Morgan Chase & Co (JPM) (-4.21%) were the largest losers. Only 7 of the Dow's 30 components closed in positive territory, although most did so just barely. Drug makers helped to offset the losses with Merck & Co Inc (MRK) up 3.2%. Pfizer (PFE) and Johnson and Johnson (JNJ) posted smaller gains, but gains nevertheless, of 0.2% each.



The S&P 500 ($SPX) fell 14.60 points, or -1%, on Monday. It ended the session at 1,380. The strongest gainers were Cummins Inc. (CMI) (+6.48%), Dynegy Inc. (DYN) (+5.89%), and Nabors Industries Ltd (NBR) (+5.69%). On the other end of the scale were losses in Ambac Financial Group (ABK) (-13.71%), Washington Mutual (WM) (-12.19%), and CIT Group (CIT) (-9.88%). 30 of the indices components fell more than 5%, while only three gained more than that. As you can see, banks felt quite a bit of pressure. Merrill Lynch downgraded both Wells Fargo & Co (WFC) and Wachovia Corp. (WB). WFC ended up losing 6.7%, while WB fell 8.2%. American Express Co. (AXP) also felt the slap of a downgrade by UBS and lost 3.9% on the day.



The Nasdaq Composite ($COMPX) was the hardest hit yet again. It dropped 30.51 points, or 1.3%, to close at 2,382. In the Nasdaq 100 the largest gainers were Patterson Uti Energy Inc. (PTEN) (+6.58%), Yahoo (YHOO) (+3.35%), and Cadence Design System Inc. (CDNS) (+3.02%). Top losers were Ryanair Holdings (RYAAY) (-8.28%), UAL Corp (UAUA) (-6.22%), and Ross Stores Inc (ROST) (-5.79). 5 of the 100 closed with losses greater than 5%, whereas only one, PTEN, posted gains greater than 5%. Although not in the Nasdaq 100, Google (GOOG) had an impact on the Nasdaq as a whole with a loss of 20.47 points, or 4%.



Heading into Tuesday's session, my focus has not changed much for the week. The market is currently dealing with the first daily resistance we'd looked at a few weeks ago, but how it reacts to this level is going to determine the odds from there. If the market drops sharply off this resistance, then a triangle on a daily-weekly time frame becomes likely, whereas congestion here would create a Phoenix on the daily time frame.

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.