The market had a rough session on Monday to kick off the new trading week. The indices chopped back and forth throughout the majority of the session with the tech-heavy Nasdaq leading downside momentum. This is creating that build-up at the daily support from previous lows I discussed yesterday and is allowing for the market to correct from Friday's extreme downside move.

As the session began, the bears were still out in full swing. The market opened with only a minor difference in prices compared to Friday's close, but it immediately flushed lower following the bell. The momentum stalled as the first reversal period hit at 9:45 am ET, but it wasn't until the 10:00 data came out that the market saw its first real intraday correction off support.

The 10:00 data was mixed. On the one hand, the Commerce Department reported that spending on U.S. construction fell in January by 1.7%, which was a full percentage point more than had been anticipated. On the other hand, The Institute for Supply Management, while it still showed contraction of the U.S. manufacturing market in February, saw its index fall to a lesser degree than expected. Analysts had forecast a reading of 47.5% and instead it fell from 50.7% in January to 48.3% in February.

The post-data rally took the indices back to the upper end of the day's range where it found resistance and rolled over for a second time on the day into 10:30 ET. The Nasdaq broke to new lows into the 11:15 ET correction period, but the S&Ps and Dow managed to hold the morning's support and pulled higher mid-day. Three waves of upside on the 2-minute time frame exhausted the mid-day rally right into earlier highs and 15-minute 20-period simple moving average resistance.

Although the afternoon reversal pattern at 12:30 ET was nearly textbook, and the immediate follow-through was perfect, the market had difficulty maintaining a steady move for long and the indices began to chop around even more. This greater volatility was most pronounced in the S&Ps and Dow, but even the Nasdaq experienced a lot of overlap from one bar to the next on the 5-minute time frame as it headed lower into the afternoon.

The market hit support at the 15:00 reversal period, holding the zone of the previous lows in the S&Ps and Dow intraday and on the daily time frame in all three indices. The bounce off this support was just as sloppy as the move into it, however, and made it difficult to time additional entries if you happened to have missed the initial trigger zone.

The session ended on Monday with the markets relatively unchanged. The Dow lost 7.49 points, or 0.1%, and closed at 12,258.90. The S&P 500 gained 0.71 point, or 0.1%, and closed at 1,331.34. The Nasdaq Composite lost 12.88 points, or 0.6%. It closed at 2,258.60, which was its lowest closing price since early October, 2006.

My outlook for this week remains the same as it was heading into yesterday. As long as there is not a strong, or sustained, rally off this support, and it holds the upper end of last week's range, then we are going to easily see new lows in the Nasdaq this month and a retest of the lows in the S&Ps and Dow. The momentum on that move, however, will determine the action from that point forward. If the descent is swift, the market can push further, but retrace with more chop. If instead it slowly chops lower from one day to the next into that support, which is currently more likely, then it can pop quickly for a few days to a week once that zone hits. On Tuesday the best setup will be a slightly lower low on the 30-minute charts in the morning. This can then create a strong bounce back higher in the afternoon.

Dow Jones Industrial Average ($DJI)


S&P 500 ($SPX)


Nasdaq Composite ($COMPX)


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.