After the sharp return of selling on Friday, the market was mixed as the new trading week began. Still reeling from the blow inflicted by General Electric's (GE) disappointing earnings and annual forecast, the bulls were hesitant to commit and remained so throughout the session. The S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) had the most difficult time throughout the morning due to continued weakness from the financial sector.

Even though a few stocks did manage to trend nicely on Monday, the day was a difficult one when it came to locating solid setups for strong follow-through. I had managed to find WB and APOL early on for continued selling early in the session, ZION for a mid-day breakdown, and STI for a late day breakdown (all on the short side), but also ended up stuck in CRS, which attempted to continue lower early in the afternoon and failed. Of course, the higher risk from the early morning extension was a main contributor to this. The problem on Monday, however, was that most of the potential setups I came across intraday had similar risk factors and pickings were much slimmer than usual.

Volume was on the light side of average in Monday's session and the market was unable to establish a strong trend bias intraday. The morning began with some continued weakness and downside follow through from the prior session, but the main trait was that the choppy trading from the final two hours on Friday also followed through. Ahead of the open, the index futures managed to cut some of its premarket losses when the the Commerce Department reported a slight increase in March retail sales data, beating expectations. It was not enough to hold, however, and the market opened relatively unchanged and still faced with the downtrend set in play Friday morning.

The Nasdaq Composite ($COMPX) hit support early on in the day when the NQ, which is the Nasdaq 100 EMini, hit its -38.2% fibonacci retracement level from the downside move which took place between April 7th and 9th last week. This support held perfectly and the NQ reacted accordingly. The next major fibonacci level for the NQ was just over 1816 and became my target price zone.

The S&P 500 and Dow Jones Ind. Ave. did not have as strong of support levels hitting. Although they both pulled higher out of the 9:45 ET correction period with the Nasdaq, they fell sharply at 10:00 ET when the February Business Inventories data came out. U.S. business inventories rose 0.6% in February from a revised 0.9% increase in January.

Although the Nasdaq was able to hold support at 10:15 ET, the S&Ps and Dow fell to new intraday lows. The correction off that support was more gradual than the descent into it and created an Avalanche short pattern in the Dow. This triggered out of the 11:00 ET correction period. All three of the indices also held this correction time period and began to fall. The Dow and Nasdaq were also reacting to the 15 minute 20 sma resistance at this time. Both the S&Ps and Dow once again made new lows, but held the equal move zone from the prior 5 minute decline, while the Nasdaq again held the morning lows.

The market began to move higher once again at 11:30 ET. The move was on the gradual side into the 5 minute 20 sma. At that point, however, instead of reacting to the resistance with a bear flag on the 5 minute time frame, the 5 minute 20 sma zone held and a congestion area formed. The congestion created a Phoenix pattern, albeit a very premature one. It triggered at about 12:30 ET and the market moved steadily into the day's highs. These served as resistance in the Dow, but the S&Ps and Nasdaq were able to break them before the 13:00 ET correction period hit and turned the market around once again. This also corresponded to a number of other resistance levels. The ES (EMini S&P 500) had returned to its own -38.2% fibonacci level from last Monday to Tuesday's drop and the NQ was hitting its 30 minute 20 sma and the target zone from the bounce (although it did fall a few ticks short).

The light volume on the rally did not sit well with the bulls. The pullback off the highs, while not as sharp as the rally itself, was still on the strong side. Within that pullback the market lacked any strong upside moves to shift the momentum in favor of a triangle or longer congestion to allow the bulls to maintain control throughout the afternoon. As a result, the indices just chopped lower throughout the remainder of the session with the 5 minute 20 sma serving as resistance. The day's lows held as support, but there is not much to suggest that the bulls will be able to regain control in Tuesday's session either.

The Dow Jones Industrial Average closed lower by 23.36 points on Monday, a loss of 0.19%. It ended the session at 12,302.06. The S&P 500 fell 4.51 points, or 0.34%, and closed at 1,328.32. The Nasdaq Composite dropped 14.42 points, or 0.63%. It closed at 2,275.82. The Russell 2000 lost 2.09 points, closing at 686.07, down 0.3%.

The top declining sector on Monday was the banking sector. The Philadelphia Banking Index closed lower by a whopping 4.23% on Monday. The AMex Securities Broker/Deal Index fell 2.78%, while the PHLX Housing Sector Index dropped 2.17%. The gainers on the day came primarily in oil and energy-related stocks. The PHLX Oil Service Sector Index rose 2.36%, while the Amex Oil Index climbed 2.78%. The Amex Airlines Index also rose. It closed higher by 2.87%. The Amex Gold BUGS Index climbed 0.61%, while the Amex Natural Gas Index gained 2%.

In the financial arena, Wachovia (WB) reported that it would raise $7 billion in capital and cut its dividend after reporting a large first-quarter loss. It fell 8.1% on the day. The gap lower from the daily triangle is what had caught my attention earlier in the session. Also hit were Bank of America Corp. (BAC), which fell 3.7%, and Citigroup Inc. (C), which lost 3.6%. American Express (AXP) fell 1.5% on Monday.

The momentum on the 60 minute time frame remains bearish with the gap level from the close on March 31st as the next major support in the indices. After that the lows from March 28th are price support. I expect the momentum to slow coming into the zone between these two levels to allow for a larger correction off these lows on the 60 minute time frame. Until then, however, I urge a great deal of caution on the long side for the most part.

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.