As we headed into Monday morning and the start of a new week, foremost on the minds of many was Hurricane Katrina, which was setting up to hit the hardest in the early morning hours. What this did was create a flush in the market by pushing the futures lower over the weekend and creating a nice downside gap into the open. As I said yesterday, most gaps like this on such news will try to fill instead of hold as the morning progresses. That was certainly the case here where a premarket range at highs created a breakout buy setup right into the open. This propelled the market higher right away and it took no time at all for the gap to close.

Despite Katrina dropping back and missing a direct hit on New Orleans, it still made landfall as a category 4. While I don't know that this made a huge impact on market activity, it certainly didn't make things more difficult. The market as a whole continued its upside move into the 10:15 ET reversal period where the Dow Jones Ind. Ave. and NASDAQ Composite ran into 5 minute 200 sma resistance intraday and the NASDAQ also came into price resistance at Friday's highs. This stalled the move and led to a correction into noon.

The market held up very well over lunch. It didn't attempt new highs, which could have led to a reversal, and instead just fell into a narrowing range into the early afternoon. The declining volume at that time confirmed that traders were not panicking and that buyers were simply just waiting things out for a better correction. The market initially was showing a bit stronger downside within the range in the Dow, but the pace changed heading into the 13:00 ET reversal period when the market broke its range to trigger another buy into the early afternoon. This was a bit tougher to catch than the setup at the open because it got off to such a rapid start. Unless you were following it very closely, it would have been difficult to enter without chasing.

The follow through on this setup was very strong. It put in an equal move on the 15 minute charts by creating a small 2 minute Bull Flag out of 13:30 ET. The price resistance hit at the 14:00 ET reversal period with the equal move zone as well as prior highs in the SP500 and Dow. I was unwilling to commit to short setups into the afternoon because of the action on the daily charts at this time, but the resistance held very well. As you can see though, the pullback off that level was not particularly strong. The move came into the 5 minute 20 sma and that held as the SP500 and Dow both formed very small upside continuation patterns. This took them to new highs, but only led to a retest in highs on the NASDAQ, which then formed a 5 min. 2T reversal pattern into the close.

We now have potential for a 15 minute Bull Flag in the NASDAQ going into Tuesday. The SP500 and Dow both broke earlier than would have been ideal with the 15:00 continuation, so this takes a bit of steam out of those two indices, but I would continue to use more caution on shorts than longs overall. The indices still have a bit of room to test larger support on the daily and weekly charts. The 20 week sma is one example. This makes it more risky that we see a bit more overlap in prices at this point. I would actually prefer a better test of this support in order to facilitate higher probability swingtrades.

Updates: AMT from last Monday has support at its 20 day sma.  INFY short from the 15th has hit trailing stops. I am still watching HSP for a position trade buy on a breakout from the weekly and monthly range. WLP, CHRS and MET are two that I am watching for upside daily breakouts with OIH, COP, and MRO as potential shorts.

Economic Reports and Events
Aug. 30: Consumer Confidence for Aug. (10:00 am), Factory Orders for Jul. (10:00 am), FOMC Minutes (2:00 pm)
Aug. 31: Chain Deflator-Prel. for Q2 (8:30 am), GDP-Prel. for Q2 (8:30), Chicago PMI for Aug. (10:00 am)
Sep. 01: Initial Claims 08/27 (8:30 am), Personal Income for Jul. (8:30 am), Personal Spending for Jul. (8:30 am), Construction Spending for Jul. (10:00 am), ISM Index for Aug. (10:00 am), Auto Sales for Aug. (12:00 am ), Truck Sales for Aug. (12:00 am)
Sep. 02: Average Workweek for Aug. (8:30 am), Hourly Earnings for Aug. (8:30 am), Nonfarm Payrolls for Aug. (8:30 am), Unemployment Rate for Aug. (8:30 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Aug. 30: ADCT (A), SMTC (A)
Aug. 31: SNY (B), TIF (B)
Sep. 01: CIEN (B), COCO (B), FNSR (A), HRB (A)
Sep. 02: -
Sep. 05: -

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.