Market action was choppy on Monday as the indices attempted to push higher, but struggled with last week's range. The session began with a strong upside gap following a steady trend higher in Sunday's futures session and an early morning breakout in premarket trading on Monday. The gap and opening trade action led to a retest of Friday's highs in both the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI), while the Nasdaq Composite ($COMPX) also found resistance from the prior 5-minute highs on Friday. These resistance levels, along with the extent of the gap, made it very difficult for the market to continue higher right away out of the open and a corrective move began on the 15-minute time frame which lasted for the first half of morning trade.

Initial support hit in the indices at about the same time as the 9:45 ET correction period. The Nasdaq popped enough off these levels to retest the premarket highs, where the Nasdaq futures found resistance once again. This created a new intraday high for the index, albeit a minor one. The S&Ps and Dow, which had already been further extended, held earlier congestion and the intraday highs. They rolled over once again at approximately 10:00 am ET, coming off the 5-minute 20-period simple moving average on the all sessions time frame.

Two waves of selling on a 5-minute time frame brought the three indices into support once again at 10:30 ET. At this point they were hitting the 5-minute 20 sma intraday, as well as the 50% retracement level in the S&P 500 and 62% retracement level in the Dow and Nasdaq. These levels are based upon the rally off Friday's afternoon lows and into the morning highs. Fibonacci levels hold very well in the indices and can be extremely helpful in timing intraday corrections and reversals. In this case, it meant support for the morning's lows.

For the remainder of the morning the indices climbed higher. They retraced 62% of the selloff, stalled for about 20 minutes at 11:00 ET, and then continued at a steadier pace pace into and beyond the morning highs. The move lasted until 11:45 ET. At that point the Nasdaq was hitting Friday's highs, stalling the buying once again. The Russell 2000 also found resistance at this zone, hitting 10:00 ET highs. The Russell 2k had been lagging throughout the day and was the only index of the four to close its morning gap around 10:30 ET.

The market held the highs and price resistance for nearly an hour, basing steadily on declining volume. This created a nice bull flag forming as the indices approached their 5 minute 20-period simple moving averages for support. They broke higher once again right after 12:30 ET. The S&P 500 led the move, pushing quickly into the -38% retracement level from the move off Friday afternoon lows into the morning highs. This level held to the tick and the market turned around once again, gaining momentum on the selloff with the Nasdaq leading the downside.

Since the bull flag was not able to hit a move equal to the prior 5 minute rally and the momentum on the pullback off the resistance was on the strong side with the resistance hitting on multiple time frames, the odds were very strong that the market had seen the highs of the day. My bias flipped quickly to the bears, focusing on a move lower for the remainder of the afternoon.

The market was actually quite strong on this downside. Once it began to sell off it didn't even manage to make it back to the 5-minute 20 sma on any of the corrections and instead only formed continuation moves on a 5-minute time frame. Volume spiked with some initial support at the Nasdaq prior lows at about 14:30 ET, but a bear flag took the indices into new intraday lows at 15:00 ET. Continuing the trend of Fibonacci levels holding well, both the S&P 500 and Dow sold off until hitting their -138% retracement levels from the late morning uptrend. This strong support allowed the market to hold those lows into the closing bell.

Once again the market remained relatively unchanged on the day despite the intraday swings. The Dow gained 3 points, closing at 12,612.43. The S&P 500 rise 2.14 points and ended the day at 1,375. The Nasdaq Composite closed lower by 6.15 points at 2,366. As we head into Tuesday's session, the market is favoring a bit of upside in the morning, but the larger bias is now somewhat more bearish due to the series of slightly higher highs on the 60-minute time frame. The 20 day sma will still remain support.







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.