Tuesday morning got off to a weak start. As the damage from Hurricane Katrina continues to mount, record highs in crude oil and gasoline futures put a damper on the market. The day began with a pretty strong downside gap into the 5 minute 200 sma and 30 minute 20 sma intraday in the indices. This was also the level of the mid-day breakout from Monday, creating support into the open. Nevertheless, at the same time, the SP500 had been basing at this level on the all sessions charts for quite awhile before the open. As the regular session began, this range broke lower, creating the first pattern of the day with a short setup.

The NASDAQ held up a lot better into the open, but did not have as strong of a short setup from the premarket. It moved into a range right away while the SP500 and fell for the first 15-30 minutes of the day before forming a very choppy base at lows. This broke around 10:30 ET on a higher risk setup due to the very sloppy base where the pace had not turned over to favor bears before it broke lower. The move picked up, however, to create an equal move on the 15 minute charts heading back into the lows of the prior two trading days. This hit at the 10:45 ET reversal period and volume spiked to help kick off a correction to the selling going into noon. It continued by putting in slightly lower lows at 11:15 ET to form a 2B reversal in the NASDAQ in particular. This trap of new bears pulled the market back into its 5 minute 20 sma resistance, which it hugged into the 12:00 ET reversal period before breaking higher.

The market held this morning range for the remainder of the day, stalling at the 5 minute 200 sma that had been support going into the open. There it formed a sloppy Bull Flag on the 5 minute charts into the 20 sma support before breaking higher around 13:30 ET to retest the opening price zone. This strong 15 minute resistance held very well and the pace once again picked up on the downside coming off the pivot high. It continued after a small correction into the 5 minute 20 sma resistance, moving back into the morning lows going into the 15:00 ET reversal period.

The 15:00 ET reversal period held well with the larger 15 minute support and the market pivoted strongly higher into the last hour of the day. The pace picked up after a brief stall at the 5 minute 20 sma before rallying back into morning highs. This is where it closed on the day.

My bias is essentially the same as yesterday. We still have room for a better test of weekly support, but at the same time the market is trying to correct a bit on the daily, so we are seeing more choppy action with a lot of indecision. We do not have strong setups forming intraday going into Wednesday's session, so I'll be focusing more on the intraday action and just managing open swing trades, a few of which I've been following here.

Updates: AMT from last Monday has support at its 20 day sma. WLP broke higher on Tuesday out of the daily triangle and has support under Monday's lows. I am still watching HSP for a position trade buy on a breakout from the weekly and monthly range. I am watching CHRS and MET for upside daily breakouts. Due to strong daily charts on Tuesday, I will be removing OIH, COP and MRO from the short watch list for now.

Economic Reports and Events
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. 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.